Japanese retail investors double down on AI stocks with borrowed money

Retail investors in Japan are rapidly ramping up margin trading — borrowing money or shares from brokerages to buy and sell stocks — fueled by a frenzy in AI-related equities. The total value of such credit transactions has doubled in just six months, surpassing 1,000 trillion won. The share of margin trading in overall retail stock transactions has also climbed above 80 percent, hitting an all-time high.

According to the Nikkei newspaper, Japanese retail investors' margin trading volume reached 123 trillion yen ($772 billion) in July — roughly double the level seen at the start of the year.

That matched the record set in June, which was the highest since related statistics began being compiled in 2016. Margin trading by Japanese retail investors has surged sharply this year, keeping the figure at an all-time high for two consecutive months.

The share of margin transactions within total retail stock trading has also risen sharply. Credit transactions accounted for 83 percent of total retail trading value — including cash transactions — last month, an all-time high. In practical terms, more than eight out of every 10 yen that retail investors traded involved borrowed money or borrowed shares.

AI-related stocks are driving the surge in margin trading among Japanese retail investors. As individual funds pour into AI-linked sectors such as semiconductors and data centers, short-term trading that capitalizes on share price volatility has grown increasingly active.

Many AI-related stocks have seen their share prices rise sharply, pushing up the minimum investment required to trade them. Analysts say this is prompting investors to borrow funds from brokerages rather than rely solely on cash on hand, buying shares and flipping them quickly for short-term gains.

Kioxia Holdings, a Japanese NAND flash memory maker, is a prime example. The company's margin-trading buy balance reached 13.23 million shares as of Friday.

"Led by Kioxia Holdings, popular AI-related stocks see large share price swings, making short-term profit-seeking trades very active," said Kubota Tomoichiro, an analyst at Matsui Securities.

The surge in margin trading does not appear to have immediately elevated the risk of losses for retail investors to a significant degree.

The unrealized profit-and-loss ratio for margin traders turned positive in June — an unusual occurrence — meaning that margin traders as a whole were sitting on paper gains.

By the end of last month, the ratio had slipped back into negative territory at minus 8.4 percent, but that was still a smaller loss than the 10-year average of minus 10.2 percent. Even as margin trading has swelled to record levels, investors' unrealized losses have so far remained below the historical average.

Margin trading can amplify gains when share prices rise, but it can also accelerate losses when they fall. With credit transactions concentrated in highly volatile AI stocks, a sharp drop in those names could trigger forced liquidations that further deepen the decline.