South Korean retail investors' frenzy of breaking deposits and borrowing to trade stocks may trigger a financial bomb, says Citigroup

South Korean households are increasingly tapping into loans, particularly personal credit and overdrafts, to fuel their investment activities. In May, household loans surged by 9.3 trillion won, marking the fastest monthly increase since August 2024. This trend indicates a significant shift in capital, moving away from traditional bank deposits and bond investments towards the stock market.

Data from Citigroup reveals a sustained inflow of capital into stock-related investments, with retail investors playing a dominant role. Their net buying, including ETF-related activities, has reached a 12-month historical high as of June 11. This aggressive retail participation has absorbed selling pressure from foreign investors on the KOSPI index, contributing to a recent weakening of the South Korean won.

The combination of increased household borrowing and heightened retail investor enthusiasm is driving a sharp rebound in the South Korean stock market. However, Citigroup warns that this escalating trend is exacerbating financial stability risks, suggesting a potential for instability if the borrowing and investment frenzy continues unchecked.