No. of Korean stocks with higher than 10% margin loan ratio doubles this year

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The number of South Korean stocks with a margin loan ratio of higher than 10 percent has doubled this year, raising concerns that investors are borrowing more funds from brokerages to invest in stocks.

According to the Korea Exchange on Wednesday, the number of stocks with a margin loan ratio of higher than 10 percent in the Kospi and Kosdaq markets stood at 21 as of Monday, more than doubling from 9 in December last year.

The number of stocks with a ratio of higher than 5 percent also came to 269.

The margin loan ratio is calculated by dividing the number of shares purchased with loans by outstanding shares. The higher the ratio, the greater the number of shares bought on credit.

Kosdaq stocks accounted for a high portion with 13 stocks with a margin loan ratio of higher than 10 percent. More than 200 stocks had a ratio of 5 percent or higher.

Youngpoong Paper Mfg. Co. had the highest ratio at 15.99 percent, followed by DAOL Investment & Securities Co. at 14.78 percent, WooriNet, Inc. at 12.68 percent, Sun Kwang Co. at 12.59 percent, Sebang Co. at 12.17 percent, Victek Co. at 11.9 percent, and Jeju Semiconductor Corp. at 11.59 percent.

Analysts noted that the trend reflects a growing number of investors willing to go after short-term gains instead of considering corporate value such as business conditions and growth potential.

Stocks with a high margin loan ratio are sensitive to supply and demand factors and thus are more vulnerable to price volatility. Reverse trading automatically takes place when the stock price falls below a certain level and investors not only suffer large losses but take the toll of an additional downward pressure when the stock market declines.

According to the Korea Financial Investment Association, the outstanding balance of loans on margin accounts reached 20.4 trillion won ($15 billion) on Monday, up from 16.5 trillion won in December last year. The balance in the Kosdaq market stood at 10.6 trillion won.

Concerns rise among the brokerages that an increase in the amount of borrowings by customers for investment may contract investor sentiment in the entire market.

“Stock prices have overheated recently with long-term rosy outlook for the next two to three years already being reflected in the case of certain stocks and sectors,” said Yoo Seung-min, head of the investment strategy team at Samsung Securities Co. “Capital inflow may be put on hold.”