April 29 (Asia Today) — South Korean stocks are continuing a high-point rally as the KOSPI approaches 7,000, but stock lending balances, viewed as a leading indicator for short selling, have climbed above 175 trillion won ($118 billion), raising concerns among retail investors.

Margin loan balances, a key gauge of leveraged stock investment, also reached a record 35 trillion won ($23.6 billion). Analysts warn that if short-selling pressure and forced liquidation occur at the same time, losses for individual investors could grow.

According to the Korea Financial Investment Association, stock lending balances in the domestic market stood at 175 trillion won ($118 billion) on Tuesday. That was up 54.7% from 113.1 trillion won ($76.3 billion) on Jan. 2, the first trading day of the year.

Stock lending balances had already surpassed 150 trillion won ($101 billion) before the Middle East crisis began Feb. 28. They later fell to 127.3 trillion won ($85.9 billion) on March 4, shortly after the crisis erupted. But as the situation moved into a negotiation phase and Korean stocks resumed their rise, lending balances topped 175 trillion won, marking an all-time high.

Stock lending balances are considered a leading indicator for short selling because investors must borrow shares before selling them short. A rise in lending balances can mean that more shares are available to be used for short-selling trades.

At the same time, margin loans have continued to rise. Combined margin loan balances on the KOSPI and KOSDAQ stood at 27.4 trillion won ($18.5 billion) on Jan. 2 and climbed to 32.7 trillion won ($22.1 billion) on Feb. 27, just before the Middle East crisis.

After Korean stocks fell under pressure from high oil prices and a weak won, margin loan balances dropped by about 1 trillion won ($675 million) to 31.7 trillion won ($21.4 billion). But as the Middle East situation stabilized, margin loan balances rose again to 35.5 trillion won ($24 billion) on Sunday, reaching a record high.

Recent forecasts by global investment banks that Korean stocks could reach 8,000 have raised investor expectations, but external risks remain. After the United Arab Emirates announced its departure from OPEC and OPEC+, West Texas Intermediate crude futures for June delivery rose near $100 per barrel and closed at $99.93.

Such external risks could disrupt leveraged investment strategies by retail investors. Borrowing to invest can amplify returns when stocks rise, but it also increases losses when prices fall. If short-selling volume increases, stock declines could accelerate. Retail investors who increased margin positions near market highs could face both valuation losses and forced selling pressure.

From the first trading day of the year through Tuesday, the 10 stocks with the largest lending balances were SK hynix at 20.59 trillion won ($13.9 billion), Samsung Electronics at 19.07 trillion won ($12.9 billion), Hanmi Semiconductor at 6.3 trillion won ($4.25 billion), HD Hyundai Heavy Industries at 5.15 trillion won ($3.48 billion), Hyundai Motor at 4.17 trillion won ($2.81 billion), LG Energy Solution at 3.81 trillion won ($2.57 billion), POSCO Future M at 2.02 trillion won ($1.36 billion), Samsung SDI at 1.96 trillion won ($1.32 billion), Mirae Asset Securities at 1.9 trillion won ($1.28 billion) and Samsung Electro-Mechanics at 1.73 trillion won ($1.17 billion).

The 10 stocks accounted for 48.04% of all lending balances in the KOSPI market.

“If geopolitical uncertainty such as a war between the United States and Iran grows, or if the bubble in artificial intelligence-related stocks bursts, accumulated short-selling volume could pour into the market at once,” said Lee Hyo-sup, a senior research fellow at the Korea Capital Market Institute. “If stock prices plunge at that time, the risk of forced liquidation will also increase for retail investors who borrowed to invest.”

“Investors using margin loans should be cautious because interest burdens grow if stock prices do not rise further, and losses can expand quickly in a falling market,” Lee said.

— Reported by Asia Today; translated by UPI

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