Retail selloff from margin call-related sale aggravates downside in Korean markets

[Source: Yonhap]

Margin call on leveraged stockholdings has been fanning downward spiral in Korean stock market.

The balance of margin accounts at local brokerages reflecting leveraged retail stock investment slipped to 19.5 trillion won ($ 15 billion) on Wednesday, according to the Korea Financial Investment Association. It dipped below 20 trillion won on Tuesday for the first time since Feb. 2, 2021.

A margin account is a type of brokerage account in which securities firms lend individual investors cash to purchase stocks, with the account used as collateral. Brokers make margin call, requesting account holder to deposit additional fund. If the account holder fails to respond, the broker can sell stocks in the margin account.

The margin balance has thinned due to increased margin calls in the domestic markets under bearish run where gainers have been few.

In June, the triggered stock liquidation from margin call valued 21.2 billion won a day, up 28 percent from May, showed data at the Korea Financial Investment Association.

The number of margin accounts at the risk of forced liquidation surged to 7,644 Wednesday from 673 on June 2 at one unnamed big securities company, A mid-sized brokerage firm saw such accounts jump to 500 from 20 earlier this month, according to sources at the companies.

When the Kospi and Kosdaq hit new annual bottoms to the levels before 2021 boom on Thursday, retail net sale topped 700 billion won with involuntary liquidation counted.

Both Kospi and Kosdaq recorded new annual lows on Thursday, closing at 2,314.32 and 714.3, respectively. They managed to recoup some losses during the morning session on Friday, but investors yet remain wary.

Analyst are adjusting down their prospect on the Kospi’s bottom for the second half of this year to as low as 2,000.

Huh Jae-hwan of Eugene Investment and Securities project the Kospi to stop its fall between 2,050 and 2,300, if earnings of Korean firms shrink 10 to 20 percent.

Some, however, see the Kospi has near its bottom.

Han Ji-young of Kiwoom Securities expected downward pressure on Korean stocks to be limited, as Kospi already shed 12.8 percent in June and 21.3 percent versus the beginning of this year.

Kospi’s forward price-to-book ratio (PBR) is at 0.85x and trailing PBR at 0.92x now to near the average for the pandemic period, 0.77x and 0.79x, respectively, noted Han.

PBR measures the market capitalization of a company relative to the book value of its stock.

By Kim Geum-yi and Cho Jeehyun

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]

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