Leveraged punters worry the financial regulators

Individuals borrowing money to buy stocks and properties are worrying the regulators.

Doh Kyu-sang, FSC vice chairman, attends a visual meeting on financial industry's risk at the government complex in Seoul on Tuesday. [YONHAP]

Individuals borrowing money to buy stocks and properties are worrying the regulators.

While the index has been on a tear and real estate prices are climbing, leveraged investors could be devastated if the market suddenly turns against them.

The financial authority said it will continue to closely monitor and manage the rising debt of both households and businesses.

“While the stock index has been rising due to the increase in capital inflows from retail investors, there’s a risk of volatility due to internal and external factors, including the direction of global fiscal and monetary policies as well as the progress of the novel coronavirus,” said Doh Kyu-sang, Financial Services Commission Vice Chairman during a government financial risk monitoring meeting held Tuesday. “As such, we will closely monitor the financial market.”

He added that the financial authority will especially monitor any illegal activities that may hurt the fairness and transparency of the financial market while emphasizing the recent tightened regulations against illegal short selling.

“We will also come up with measures that will support investors that invest stocks long-term,” Doh said.

The Kospi on Tuesday closed 68.68 points lower, down 2.14 percent as foreign and institutional investors unloaded their shares. Retail investors continued to buy, net purchasing 4 trillion won ($3.61 billion) of shares.

Kospi, which fell sharply in March last year due to the spread of Covid-19, has been rallying since late 2020. The index was up 30 percent last year.

Retail investors were the driving force behind the Kospi’s upswing as they net purchased 47.5 trillion-won worth of stocks last year, a record.

That momentum continued as the Kospi broke 3,000 for the first time on Jan. 7.

While welcomed, concerns are that investors might be stretched.

Margin loan balances for the first time exceeded 20 trillion won on Jan. 7. At the end of last year, the balance was 19.2 trillion won. As of Monday, it is at 21.6 trillion won.

Even politicians have been pressuring the financial authority to suspend the reinstating of short selling, which some believe will stand in the way of a further rise.

The FSC has said earlier that it would again allow short selling, but it walked back its comments. It is not clear whether it will continue to suspend the practice or end the ban.

Some in the market consider short selling as a buffer that could stabilize the market from extreme volatility.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]