Subtitle News: "Debt-Fueled Investing" Backfires as Forced Liquidations Top 400 Billion Won in July Alone

The amount of forced liquidations—where individual investors who engaged in debt-fueled trading, or "bit-tu," failed to repay borrowed funds on time—has surpassed 400 billion won this month alone.

This follows a sharp plunge in the domestic stock market, driven by the reignition of the war in Iran, concerns over a peak in the semiconductor cycle, and supply-demand distortions in single-stock leverage products.

There are growing concerns that the influx of liquidated shares from forced sales into the market will exert further downward pressure.

According to the Korea Financial Investment Association, the actual amount of forced liquidations relative to brokerage margin receivables reached 425.8 billion won between the beginning of this month and July 10.

In particular, the value of stocks forcibly liquidated due to margin calls on July 9 alone amounted to 142.2 billion won.

The ratio of forced liquidations to margin receivables on that day was 10.2%, the highest level since June 9, when it reached 10.5%.

On July 10, the following day, an additional 81.6 billion won worth of shares were dumped into the market at prices lower than the market rate.

Brokerage margin trading is a form of debt-fueled investment where investors borrow money from securities firms for three trading days when they lack sufficient funds for stock settlement. If the shortfall is not covered within that period, the securities firm forcibly sells the stocks at a price lower than the market rate on the next trading day, a process known as forced liquidation.

As the stock market continued its downward spiral, a large volume of stocks held by individual investors who had engaged in debt-fueled trading were liquidated.

Given the time lag between the occurrence of collateral shortfalls and the execution of forced liquidations by securities firms, there is a possibility that further liquidated shares will be released into the market for the time being.

As of yesterday, the KOSPI index had plunged nearly 9%, marking a 27.47% decline from its peak of 9,385.59 on June 19.

With volatility reaching extreme levels, there are concerns that the volume of forced liquidations will place additional downward pressure on the stock market.

While the securities industry estimates that the stock market is nearing its bottom, observers suggest that volatility will persist due to a lack of events to improve market sentiment in the near term.

As of the previous day, the KOSPI's 12-month forward price-to-earnings ratio (PER) was estimated to be in the high 5x range, a level lower than the lows seen during the global financial crisis and immediately after the outbreak of the war in Iran last March.

Reported by Kim Minjeong | Video by Lee Ui-seon | Graphics by Lee Jeong-ju | Produced by SBS Digital News
※ Please note: This article was translated by AI and may contain errors.