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Asia eyes margin debt risks after South Korea’s equity plunge
South Korea’s KOSPI fell 39% between June 22 and July 30, underscoring how margin calls and forced liquidations can quickly spread across markets, even when fundamentals do not change.
LiveMint Markets points to South Korea’s sharp summer equity rout as a template for how leverage can turn a selloff into a broader market tailspin. The KOSPI dropped 39% from June 22 to July 30, with the move widely linked to the rapid buildup and unwinding of retail margin loans.
The outlet says retail investors in South Korea used broker loans, including to buy shares of AI-linked tech giants and highly volatile single-stock leveraged ETFs. When tech shares corrected in June on concerns over the sustainability of AI capital spending, falling collateral values triggered margin calls, and investors who lacked cash faced automatic forced liquidations, deepening the slide.
Looking beyond Korea, LiveMint Markets highlights rising margin debt in other Asian markets. In India, the Margin Trading Facility book climbed from just over $1 billion at the end of 2020 to $16.3 billion as of August 31, while China’s margin balance tripled from $68 billion in early 2019 to $200 billion as of August 31, and Japan’s margin-loan balance nearly doubled from $18 billion in early 2020 to over $35 billion as of August 31.
LiveMint Markets notes that margin balances can look small versus total market capitalization, citing figures such as India at 0.3% and Japan at 0.45%. The piece argues that South Korea’s experience, where a peak margin balance of 38.7 trillion won represented barely 0.6% of market cap yet still caused major damage during the unwinding, raises the stakes for similar leverage-driven corrections elsewhere, particularly in China.
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