Foreign media warn of Korea stock risks as debt-fueled trading grows
The Kospi, won-dollar exchange rate and Kosdaq index are displayed on a screen at the dealing room of Woori Bank’s headquarters in central Seoul on the afternoon of Feb. 24. The Kospi closed at 5,969.64, up 123.55 points (2.11 percent) from the previous session, while the Kosdaq ended at 1,165.00, gaining 13.01 points (1.13 percent). [YONHAP] Korea’s stock market is heating up at a dizzying pace. The Kospi index, which has surged 148 percent over the past 14 months, rose another 2.11 percent to close at 5,969.64 on Feb. 24. The benchmark now appears poised to break through the 6,000 mark, but the rapid ascent is also heightening concerns about potential volatility. Warnings about risks in the Korean market are growing, including from overseas media. The Financial Times reported that retail investors, commonly known as “ants,” are pouring into equities as the fear of missing out, or FOMO, spreads. The Bank of Korea, which rarely comments directly on stock valuations, also sounded a cautious note during a parliamentary briefing, saying investors should be mindful of the possibility of increased volatility stemming from uncertainty over U.S. tariffs and monetary policy. Bloomberg similarly warned in November that rising leveraged purchases by retail investors were contributing to greater market swings. These concerns do not necessarily signal an imminent downturn. The central bank added that the likelihood of a sustained decline remains limited, citing government policy support and expectations of strong semiconductor industry performance. The Financial Times also stopped short of predicting a reversal, noting that ample global liquidity and a semiconductor upcycle are supporting equities. The greater risk lies in the growing reliance on borrowed money. According to foreign media reports, the number of securities accounts has climbed to 100 million, roughly double the population. Margin lending has reached about 31 trillion won ($21.5 billion), while investor deposits have surpassed a record 110 trillion won. As volatility increases, even large-cap stocks have recently seen daily swings of 4 to 5 percent. Related ArticleKospi breaks new ground, soaring past the 5,900 mark for first timeKorea's stock loans surge as market outperforms global peers Korean stock markets face violent swings on outsized chipmaker capsKorea's pension service to boost domestic stock investments as local currency's weakness continues Another concern is that government policy appears to be primarily focused on supporting stock prices. Efforts to boost shareholder value and encourage domestic investment are positive in principle, but measures such as raising the National Pension Service’s domestic equity allocation, requiring companies to cancel newly acquired treasury shares within one year, and offering tax incentives through repatriation investment accounts are being implemented amid a surge in debt-driven trading. The overheating has become evident enough that some securities firms, constrained by lending capacity, have begun suspending investment-related loans. If authorities remain preoccupied with sustaining market momentum while overlooking the expansion of leveraged speculation, systemic risks could increase. The rapid rise in equity prices may reflect improving fundamentals, but debt-fueled participation can amplify losses when sentiment shifts. The government should not ignore the warning signals emerging from the market. This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
