The Bank of Korea has raised the base interest rate to 3%, increasing the burden on stock investors who engage in borrowed investments. As the interest rates for margin trading are influenced by market rates, further increases in the base rate could lead to higher borrowing costs. The balance of margin trading, which had significantly decreased from its peak, has recently begun to rise again, raising concerns that the interest rate hike may hinder the recovery of leveraged investments.
According to the Korea Financial Investment Association, as of August 26, the balance of margin trading in the combined KOSPI and KOSDAQ markets was recorded at 33.1024 trillion won. After reaching a peak of 38.6328 trillion won on June 24, it declined to 27.4038 trillion won by August 4. Although it has shown signs of recovery, it remains 5.5304 trillion won (14.3%) lower than the year's high.
However, there are concerns that the increase in the base rate may slow the recovery of borrowed investments. The Bank of Korea's Monetary Policy Committee raised the base rate from 2.75% to 3.00% on the previous day. As securities firms calculate margin trading interest rates based on the 91-day Certificate of Deposit (CD) rate and additional spreads, the increase in the base rate could lead to higher margin trading rates. This is particularly significant for longer borrowing periods, which can result in greater interest costs for investors.
Currently, margin trading interest rates are not low. According to the latest disclosures, the short-term rates for non-face-to-face transactions range from 3.90% at Hyundai Motor Securities to 7.75% at Shin Young Securities. For general customers who do not qualify for preferential rates, interest rates of 7% to 9% are common for margin trading lasting over a month. However, the immediate impact of the base rate increase on margin trading rates may vary among securities firms.
The possibility of further base rate hikes is also a variable. Choi Je-min, a researcher at Hyundai Motor Securities, stated, "Given the Bank of Korea's proactive stance and the significant upward revision of growth and core inflation forecasts for next year, there is a strong possibility of additional hikes within the year. Considering the upward risks to growth and inflation, reaching 3.5% cannot be ruled out."
However, it is difficult to attribute the decline in margin trading solely to interest rates. Stock price trends, market volatility, and individual investor sentiment also influence the demand for leverage. If the burden of interest rates increases while expectations for a rising stock market diminish, the recent recovery in borrowed investments may falter again.
Kwon Beom-seok, a senior researcher at Samsung Securities, noted, "Indicators related to leverage, such as the balance of margin trading and the amount of collateralized securities lending, are on a downward trend. The personal buying sentiment index, which is derived from various market funding indicators, has been declining since June, suggesting that individual selling pressure may continue under the assumption of mean reversion."
* This article has been translated by AI.
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