The cost of leveraged stock investment tops 10% in S. Korea to add to market exit

The margin interest rate Korean brokerages charge for borrowing for stock investment has hit above 10 percent after uninterrupted rate increases by the central bank throughout the year to force retailers to dump their holdings and raise the downside for the market.

According to the Korea Financial Investment Association on Thursday, Hyundai Motor Securities has decided to charge 10.3 percent on its borrowings to investors for more than 90 days. Yuanta Securities last month raised margin rate for funds borrowed more than 16 days up to 10.05 percent while KB Securities revised up margin rates four times so far in the year.

The cost of leveraged stock investment will only increase in the fourth quarter as the Bank of Korea is determined to keep to tightening cycle until inflation is tamed and its U.S. counterpart slows down on rate increases.

The outstanding balance of margin accounts at securities firms stood at 16.6 trillion won ($11.6 billion) as of Tuesday, losing 2.9 trillion won from September 5th. It was also the first time in 23 months since November 2020 that the outstanding balance shrank under 17 trillion won.

The sharp fall in margin account balance was mainly driven by soaring interest rates and sour stock investor sentiment following the recent market rout. The surge in forced liquidation following margin calls has also attributed to the decline in margin trade.

As of the end of 2020, the outstanding balance of margin accounts for those under the age of 50 stood at 7.848 trillion won, 16.5 times that of those under the age of 30 with 480.3 billion won, according to data from the Financial Supervisory Service.

At the beginning of this year, however, the gap was significantly widened with the outstanding balance for those under the age of 50 coming to 8.27 trillion won, a whopping 25.8 times that of those under the age of 30 with 321 billion won.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]