Bull Theory@BullTheoryio
🚨 SOUTH KOREAN RETAIL INVESTORS ARE NOW BORROWING FROM BANKS TO BUY STOCKS.
Margin loans hit a record ₩36.47 trillion this year, double the level a year ago.
When brokerages raised margin rates toward 10%, retail investors didn't stop. They moved to bank credit lines instead.
Household bank loans jumped ₩9.3 trillion in May alone, the fastest monthly increase since August 2024. Bank of Korea data directly links the surge to stock investment, not mortgages.
How extreme has it gotten?
A South Korean civil servant posted on the workplace app Blind showing a brokerage account with ₩2.3 billion ($1.7 million) entirely in SK Hynix, with ₩1.7 billion of it borrowed on margin.
"I believe the semiconductor market will keep rising until 2028, but I'm taking a more aggressive approach to accelerate asset growth."
He is not only one. Bloomberg reported earlier this year that a mania for stocks has swept the country.
Middle aged and older Koreans are borrowing money specifically to not miss the rally, often with larger sums at stake than younger investors.
South Korea now has 102 million active trading accounts in a country of 52 million people.
While foreign investors net sold ₩120 trillion of Korean stocks this year, retail investors bought ₩75 trillion to absorb it, largely with borrowed money.
The numbers underneath this are already showing stress:
- Household debt-to-income ratio: 174%
- 44% of borrowers have missed or fallen behind on loan payments in the last 6 months
- Banks are capping loan limits because annual lending quotas are being exhausted months early
- Brokerage margin rates now approaching 10%
The 3M CD to Bank of Korea policy rate spread just hit 0.42%, the highest in over a year.
KOSPI volatility is simultaneously running at 76.6%.
A BOK rate hike is now expected next month.
Higher rates raise the cost of every margin loan and bank credit line currently being used to hold stocks.
When borrowed money gets more expensive while the market is falling, the forced selling that follows will be extreme.
