According to the Korea Financial Investment Association (KOFIA), as of August 28, the balance of margin trade in the Kosdaq market reached 2.52 trillion won (US$2.48 billion), which is almost equal to 2.66 trillion won of the KOSPI market.
Earlier this year (as of January 2), the total balance of margin trading in both stock markets were 4.17 trillion won and KOSPI and Kosdaq took 54.9 percent with 2.29 trillion won and 45.1 percent with 1.88 trillion won respectively. However, the portion the Kosdaq market with 48.6 percent almost climbed to parity with that of the KOSPI market of 51.4 percent as of August 28.
Compared with the 25 percent of the portion of the Kosdaq market in margin trading in February 2011, more investors are pouring in to the market with borrowed money. The margin transaction balance of the Kosdaq market in April hit the record level with 2.37 trillion won and it keeps increasing surpassing the 2.5 trillion mark last month.
KOFIA said that as the Kosdaq index has recovered to the 570 mark in four months, investors are willingly increasing the margin transactions evading their investment risk sentiment. Especially, as the expected rate of returns on risk-free assets including bank deposits and bonds became even lower due to the recent benchmark interest rate cut, more are coming to the stock market.
However, the margin trading is a double-edged sword. Investors should pay more attention to it especially when the stock price falls. Due to its nature of investing with the borrowed money, the investor loses twice the amount when the stock price falls.
By John Choi (firstname.lastname@example.org)