Volatile Sign
According to financial information provider WISEfn, the combined credit loan balance in the Korea Composite Stock Price Index (KOSPI) and the Korea Securities Dealers Automated Quotations (KOSDAQ) added up to 8.0286 trillion won (US$6.8815 billion) on July 24, breaking the eight trillion won mark for the first time in history.
The balance, which stood at approximately 5 trillion won early this year, skyrocketed by more than 3 trillion won in less than seven months and increased by more than 500 billion won in this month alone.
The credit loan balance pertaining to the KOSPI market totaled 3.888 trillion won (US$3.331 billion), while that in the KOSDAQ amounted to 4.1406 trillion won (US$3.5490 billion). The balance in the latter is snowballing in particular, as small-cap stocks are showing better performances than exporters and blue-chip companies as of late.
The problem is that this type of stock investment based on borrowings is showing no signs of subsiding, with stock market uncertainties on the rise these days. Stocks more dependent on credit are subject to a higher level of volatility and a more rapid decline in price during a stock market downturn.
“Credit trade requires more strict risk management, because it is particularly vulnerable to adverse factors,” said Samsung Securities research analyst Kim Yong-gu, adding, “Investors would be well advised to focus on the fundamentals of respective stocks.”