Investing in South Korean stocks has turned sour for a large number of retail investors who borrowed heavily via credit lines, with the recent market crash leaving many unable to service their debts. Data shows that investors under 30 and those aged 60 and over face the highest risk of default.
A 28-year-old office worker identified as Moon borrowed 15 million won earlier this year through a credit overdraft account to invest in the South Korean stock market. As stock prices have plunged, his investment losses have widened, but his overdraft debt remains unchanged. Moon stated, "When stock prices were rising, I thought I could pay it off quickly, but now, due to losses, I can't sell, and I have to keep paying interest." He added, "As soon as my monthly salary arrives, I have to use it to repay the overdraft loan, so I've had to cut back on gatherings and dining out."
The risks are escalating for both young and elderly groups who borrowed money to enter the market during the recent bull run. Data indicates that credit loan delinquency rates for those under 30 and those aged 60 and over are higher than for other age groups. A recent surge in credit transaction financing (borrowing from securities firms to buy stocks) and securities-backed loans is also concentrated among the elderly. As the stock market crashes, the consequences of "borrowing to speculate" are becoming apparent for these economically vulnerable age groups.
According to data submitted by the Financial Supervisory Service to the office of People Power Party lawmaker Lee Jong-woo on August 9, the delinquency rate on credit loans maturing at the end of June at South Korea's five major commercial banks was 0.67% for those under 30 and 0.59% for those aged 60 and over, significantly higher than the overall average of 0.35%. While the credit loan balance for the under-30 group is 3.6 trillion won and 10.6 trillion won for those 60 and over (lower than the 20-30 trillion won range for those aged 30-50), their delinquency rates are paradoxically higher. For overdraft accounts, the delinquency rate for those 60 and over was 0.37%, and for those under 30, it was 0.33%, both exceeding the overall average of 0.22%.
In the securities market, the scale of debt-financed stock buying by the elderly is also growing rapidly. As a representative indicator, the credit transaction financing balance at 10 comprehensive financial investment firms for those 60 and over increased by 45.7%, from 659.2 billion won at the end of last year to 960.8 billion won at the end of June, outpacing the overall growth rate of 36.3%. The increase for those aged 70 and over was even higher at 56.8%. During the same period, the total increase in credit financing was 841.9 billion won, with those 60 and over accounting for 301.6 billion won, or 35.8%. Securities-backed loans, which use held stocks as collateral to borrow from securities firms, are also concentrated among the elderly. The balance of collateral loans on the top five stocks by market cap at 10 firms was 2.9027 trillion won at the end of May, up 24.3% from the end of last year, with those 60 and over holding 63.0% (1.8283 trillion won). Subsequently, the Korea Composite Stock Price Index (KOSPI) plunged 43.9% from its intraday high in June to its low at the end of July, increasing the risk of forced liquidation due to falling collateral values.
The surge in retail investors' debt-financed stock buying has also led to a massive increase in securities firms' short-term funding. According to Koscom CHECK statistics, the cumulative issuance of commercial paper (CP) and electronic short-term corporate bonds by securities firms reached 723.9 trillion won as of August 7, a staggering 170.4% increase year-on-year. The majority of this is short-term corporate bonds with maturities of less than five days, which surged 172.6% from 244.6 trillion won to 666.8 trillion won, accounting for nearly all of the increase. Short-term funding volumes climbed sharply during the active trading months of May and June, then fell sharply in July, with fluctuations closely mirroring changes in credit transactions and stock market activity. Notably, as the South Korean stock market weakens, liquidity problems are emerging, with funds from retail investors, institutions, and foreign investors all shrinking simultaneously.
The KOSPI has struggled to rebound since its July crash, and analysis suggests that liquidity issues are becoming a key factor dragging on the market. Against the backdrop of continued foreign selling, the funds available from retail investors waiting to enter the market and the buying capacity of institutions have also decreased. This "triple liquidity contraction" is becoming an obstacle to the KOSPI's recovery. On August 10, the KOSPI closed at 6,299.66 points, down over 30% from its June high.
The views expressed in this article are for reference only and do not constitute investment advice. Investing involves risk, and caution is required when entering the market.
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