Rollercoaster KOSPI: Warning Lights Flash for 'Debt-Financed Investing' and Forced Liquidations

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After surging more than 8% in a single day, the KOSPI plunged over 4% yesterday (June 10), triggering a sidecar for the fourth consecutive trading day. Amid such extreme volatility, instances of debt-financed investing and forced liquidations of stock holdings are on the rise.

Reporter Kim Hye-min has the story.

[Reporter]

The KOSPI started the day on a weak note and saw its losses widen sharply in the afternoon.

At one point, the index plummeted by 6.8% to 7,541, triggering a sell-sidecar, which halts program trading orders for five minutes.

This marks the 24th time this year, a frequency already comparable to the 2008 global financial crisis.

The KOSPI closed at 7,730, down 4.5%.

Analysts point to various factors, including renewed tensions in the Middle East following the downing of a U.S. helicopter and concerns that U.S. consumer inflation may come in higher than expected.

While investor sentiment remains volatile, large-scale ETF trading is currently driving the direction and intensity of the market.

[Lee Kyung-min / Researcher at Daishin Securities: On June 8, financial investment firms sold 2.5 trillion won; yesterday, they bought 2.1 trillion won; and today, they sold 1.8 trillion won. Since most of this is ETF trading, it tends to be directional, which dictates the market's path.]

Despite the repeated spikes and drops, many individual investors are still engaging in risky trades.

Forced liquidations—where brokerage firms automatically sell off an investor's stocks because a drop in share prices leaves them with insufficient collateral for their debt-financed positions—have exceeded 470 billion won over the past three trading days.

The balance of personal line-of-credit accounts at the five major commercial banks stands at 42.9 trillion won, the highest level in three years and seven months since late November 2022.

The balance increased by 608.5 billion won on the 5th and 8th, days when the market saw significant declines.

[Seo Ji-yong / Professor of Business Administration at Sangmyung University: In a bear market, fear intensifies, making it easy for investors to repeatedly cut losses or face liquidation at the bottom. This leads to a pattern of buying with leverage at the peak and selling at the bottom.]

Experts advise that with unprecedented volatility continuing, investors should be more cautious than ever about trading.

(Video reporting: Choi Ho-jun, Kim Heung-ki | Video editing: Choi Jin-hwa | Graphics: Park Tae-young, Lee Jun-ho)
※ Please note: This article was translated by AI and may contain errors.