Margin debt ratio on KOSDAQ hits record high

Stock purchases on credit reached an all-time high on South Korea's secondary bourse this month as more investors borrowed money from brokers to bet on the booming market, data showed Tuesday, raising concerns over potential price fluctuations.

Margin lending amounted to 3.97 trillion won ($3.64 billion) as of Wednesday, or 3.5 percent of the total capitalization of freely traded stocks on the tech-laden KOSDAQ, the Korea Financial Investment Association said.

The margin loan rate was 3.1 percent at end-2014, but it has steadily risen to exceed a 2007 high when the KOSDAQ index broke through 820 points.

The KOSDAQ rose nearly 30 percent this year as retail investors bet on stocks with growth potential in bio and cosmetics for higher returns amid exceptionally low interest rates. It closed at 712.88 on Friday.

Market watchers worried over a potentially volatile market following hefty gains as South Korea is set to double the daily share price limit to 30 percent next month.

"The high ratio of margin lending versus the total market capitalization raises alarm over fever in the stock market," said Kim Young-il, a researcher at Daishin Securities. "The surge in margin debt is expected to raise volatility in the KOSDAQ market, coupled with the expansion of the daily stock price limit.

Investors should take caution when investing in small- and mid-caps that have a high margin lending ratio." (Yonhap)