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Korea sees surge in borrowings for stock investment
Publication Date : 24-09-2012
A growing number of small investors in Korea are investing in stocks on the secondary KOSDAQ market, particularly by applying for loans as they bet on a bullish market ahead of the December 19 presidential election.
According to the Financial Investment Association, stock investment-oriented outstanding loans to individuals increased by 29.8 per cent over the past three months -- from 1.33 trillion won (US$1.18 billion) at the end of June to 1.73 trillion won as of September 20.
The sort of lending means that investors borrow funds from brokerage firms on a credit basis without offering collateral.
The rapid growth of loan-based investment in KOSDAQ-registered stocks is noteworthy, compared to the situation that outstanding loans to small investors for stocks listed on the main bourse -- the Korea Exchange -- dropped by 6.4 per cent over the same period.
“It reflects the situation that some stocks climbed erratically mainly due to market rumors and speculation generating a wide range of "themes", including the political stock group that supposedly tracks presidential candidates for the coming election,” a stock analyst said.
Though financial regulators have vowed to deal sternly with stocks that move drastically in tandem with politician-linked rumors and other artificial factors, it seems that individuals regard this year as a rare opportunity, he said.
Politically sensitive stocks have caused public concern. A group of shares believed to be linked to presidential candidates went up sharply even though their financial and earnings status did not show any improvement.
The Financial Supervisory Service recently launched a special team to investigate the politically-themed and other problematic shares to minimize damage to ordinary investors.
There are about 80 stocks under the theme of political figures or elections, many of which demonstrated abnormal stock price movement in recent months.