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Debt financing in stock market hits new record highs day after day

Debt financing in stock market hits new record highs day after day

Posted August. 21, 2023 09:00,   

Updated August. 21, 2023 09:00


Even with the stock market continuously weakening, the scale of debt financing among investors is hitting a record yearly high day after day. As themed stocks such as secondary cells are gaining traction in the stock market, investors take out bank loans to pour their money into stocks and properties. They still have no hesitation in getting into debt to make a risky investment in the domestic financial market, saddled with the two major challenges of the U.S. Fed’s prolonged austerity measures and China’s real estate crisis. A growing number of experts warn that if the current trend of excessive debt financing in the stock market is left unaddressed, South Korea will likely fail to rein in household debt of the highest level ever at the right time.

According to the Korea Financial Investment Association on Sunday, the balance of stock lending hit a record yearly high of 20.5573 trillion won as of Thursday. Since this month began, it has risen by 819 billion won. Compared to the end of last year, it spiked by 4.0387 trillion won (from 16.5186 trillion won). Stock loans, one of the ways of investing with debt, allow you to buy extra stocks by borrowing from securities firms money secured on the shares of stocks or cash in your accounts.

In the meantime, the banking industry is witnessing funds run out of demand deposit accounts, from which account holders can withdraw their money whenever they want. As of late July, the balance of demand deposit accounts run by the top five commercial banks (KB Kookmin Bank, Shinhan Bank, Woori Bank, Hana Bank, and Nonghyup NH Bank) decreased by 23.4239 trillion won within a month to 600.4492 trillion won, according to the financial market. During the same period, investor deposits, considered idle money in the stock market, rose by 4.1424 trillion won. It is interpreted that deposits have been withdrawn from banks to turn into investor deposits in securities firms amid the recent booming of secondary cell stocks.

It is quite a rare occasion that risk investors are growing in numbers with idle money mounting up in the stock market that is showing a bearish trend in the face of various challenges, including issues arising from China. The KOSPI closed at 2,504.50 on Friday, recording a drop of 86.76 points or 3.35 percent over the recent week. The KOSDAQ index also decreased by 3.83 percent during the same period. The won-dollar exchange rate, around 1,280 won earlier this month, went up to an intraday price of over 1,340 won on Thursday.

Economics Professor Seok Byoung-hoon of Ewha Womans University pointed out that risky investment behaviors if left untreated amid growing uncertainties in the global economy, will not only cause a huge loss to individuals but also have a ripple effect on the national economy.

facthee@donga.com · wskang@donga.com