As Korean stock prices surge, "debt investing" — borrowing money to invest — is also rising at a rapid pace. The balance of personal overdraft accounts at the five major banks stood at 40.5029 trillion won as of the 7th of this month, an increase of 715.2 billion won compared with the end of April. Although the figure covers only three business days this month, the increase was the largest on a monthly basis in 2 years and 7 months. The balance itself is also the highest in 3 years and 4 months. The balance of credit-trading loans at securities firms also reached 35.5071 trillion won as of the 7th, nearly doubling in a year. Individuals appear to be borrowing to invest in stocks, driven by FOMO — the fear of being left behind. Investments funded by margin loans carry a greater risk of larger losses through forced liquidation when stock prices fall.
The KOSPI has more than tripled in about a year, and some forecasts even suggest the index could reach 10,000. Expectations are also growing that if market funds tied up in real estate shift to the stock market, it will trigger a virtuous cycle across the economy, including expanded investment. But it is difficult to remain entirely optimistic. More than half of KOSPI-listed stocks have actually declined in price compared with just before the Middle East war. Even in this record-breaking "bull market," a significant number of individual investors have suffered losses. Signs of overheating are being detected on multiple fronts, including the "Buffett indicator" — a measure used to judge the fair value of a country's stock market — rising above that of the United States.
Interest rate hikes are on the horizon, driven in part by inflationary pressures from the Middle East. Yoo Sang-dae, Senior Deputy Governor of the Bank of Korea, recently said, "It is time to stop cutting rates and consider raising them." Major central banks in the United States and Europe are also poised to shift into tightening mode in response to inflation. If rates rise, the stock market could contract due to foreign capital outflows, while interest burdens on debt investing and credit risks could grow.
Preemptive risk management is needed to prevent debt investing from spilling over into a social problem. Of particular concern, the growth rate and loss rate of debt investing among those aged 60 and over are the highest among all age groups. If retirement assets are eroded, it will also place a burden on the welfare system. Financial authorities must strengthen oversight of excessive leveraged investment and reinforce investor protection policies, while securities firms should raise the threshold for margin trading. Individual investors, too, must be alert to the risks of overstretched "soul-scraping" investments.
