Deputy Prime Minister and Finance Minister Koo Yun-cheol chaired a joint market monitoring meeting at the government complex in Seoul, attended by Bank of Korea governor Shin Hyun-song, Financial Services Commission chairman Lee Eok-won and Financial Supervisory Service governor Lee Chan-jin.
Participants expressed concern over the rapid increase in borrowing-backed stock purchases, particularly margin loans, and agreed to strengthen regular monitoring through market review meetings while enhancing preemptive risk management and investor protection measures.
The warning comes as margin lending has climbed to record levels. Outstanding margin loans rose from 27.3 trillion won at the end of last year to 38.0 trillion won as of June 1, an increase of more than 10 trillion won in five months.
Signs of mounting stress have also emerged in forced liquidations of leveraged positions. Data from the Korea Financial Investment Association showed that forced sales totaled 707.7 billion won during May, while the ratio of forced liquidations to unpaid trading balances averaged 2.63 percent during the month and surged to 7.6 percent on May 20.
On June 1 alone, forced liquidations reached 33.2 billion won, more than double the previous trading day's 15.4 billion won, with the ratio jumping to 2.5 percent from 1.2 percent.
The concerns echoed Shin's warning last week that excessive leverage could turn market corrections into self-reinforcing selloffs through forced liquidations, distorting the normal relationship between prices and demand.
Participants said favorable economic conditions, including a 53.2 percent year-on-year jump in May exports, have helped sustain the stock market rally. They also noted that Korea's stock market capitalization has overtaken India to become the world's sixth largest.
According to Bloomberg data, the U.S. ranked first with a market capitalization of US$79.5 trillion, followed by China with $15.1 trillion, Japan with $8.6 trillion, Hong Kong with $7.2 trillion, Taiwan with $5.2 trillion and Korea with $5.0 trillion. India ranked seventh with $4.8 trillion.
Officials also discussed recent volatility in the foreign-exchange market. Despite a record current-account surplus, they said the won has remained vulnerable to the Middle East conflict and continued foreign selling of domestic equities.
They noted that the sharp rise in local share prices has prompted foreign investors to rebalance portfolios and lock in profits, adding to exchange-rate volatility. Foreign investors' holdings of Korean stocks have risen to 2,991 trillion won, accounting for 38.3 percent of total market capitalization, up from 1,312 trillion won and 32.9 percent at the end of last year.
Net foreign selling of local equities has reached 127 trillion won so far this year, including 66 trillion won over the past 18 consecutive trading sessions.
Koo said authorities are closely watching markets with a high level of vigilance to prevent anxiety from spreading amid elevated external uncertainty. He also stressed that the government would take immediate action if excessive one-sided movements emerge.
Officials also agreed to closely monitor the bond market, where government bond yields have become more volatile amid global rate movements, inflation concerns and stronger expectations for domestic rate hikes. They said authorities would coordinate responses in a timely manner if excessive volatility emerges.
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