South Korean Finance Minister Warns Retail Investors Against Borrowing to Buy Stocks

South Korea's Finance Minister Koo Yun-cheol has issued an unusual warning regarding the risks associated with retail investors borrowing money to invest in the stock market. This alert comes at a time when the South Korean won has fallen to a two-month low, while the stock market continues to reach new highs. The government is closely monitoring the situation, particularly the growing trend of high-leverage trading, which is seen as a significant risk to market stability.

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The government will take immediate measures if necessary to stabilize the foreign exchange market, while closely monitoring stock and bond market risks to prevent market volatility caused by high-leverage trading.

The finance minister's statement was made as the won faced considerable depreciation pressure. Factors such as escalating Middle East tensions, increased risk of conflict between the U.S. and Iran, and rising energy prices have contributed to the won's decline. While the won's losses moderated slightly after the minister's remarks, it has consistently traded below the 1500 won per U.S. dollar mark for 12 consecutive sessions, indicating ongoing market caution regarding external risks.

Analysts point out that South Korea, heavily reliant on energy imports, is particularly vulnerable to rising international oil prices, which impact trade conditions and inflation. The worsening geopolitical situation in the Middle East fuels concerns about increased energy costs, potentially squeezing corporate profits and adding to currency volatility.

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Leveraged investment has become a major risk factor in the South Korean stock market.

Beyond currency concerns, the South Korean government is also addressing the overheating of its stock market, fueled by the AI boom. Semiconductor giants like Samsung Electronics and SK Hynix have become major investment targets, pushing the benchmark KOSPI index up significantly this year. However, this surge has been accompanied by a rapid expansion of leveraged funds. The market has seen the launch of high-leverage ETFs, attracting billions of dollars and highlighting a concentrated investor focus on AI and memory chip themes. Data from the Financial Supervisory Service shows that margin financing balances at the top ten Korean brokerages neared 36 trillion won in the first quarter, nearly doubling from the previous year. Notably, investors over 50 accounted for over 60% of this margin balance, with those over 60 seeing their margin trading scale nearly triple in a year. The increasing participation of young and inexperienced investors, with a nearly tenfold increase in new accounts for investors under 18, further amplifies concerns about speculative trading and the risks of debt-fueled investments.

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The rapid expansion of margin trading has reached a 20-year high.