Forced selling nears W300b as retail investors reel from 7-day Kospi slide

As the Kospi fell for seven consecutive trading days, forced selling triggered by margin calls on stock investors accumulated to nearly 300 billion won ($222 million). Even as the market slump dampened investor sentiment, retail investors continued buying domestic and foreign bonds.

According to the Korea Financial Investment Association, the total value of forced sales executed against unpaid margin balances from Oct. 6 to Thursday came to 298.1 billion won. The selling was particularly heavy on Wednesday and Thursday, when the Kospi dropped sharply — forced sales reached 89.3 billion won and 80.5 billion won, respectively, marking two straight days above the 80 billion won level.

Forced selling occurs when an investor fails to repay money borrowed from a brokerage or when the value of shares pledged as collateral falls below a set threshold, prompting the brokerage to liquidate the holdings. As falling share prices erode collateral value, investors can find themselves forced to sell their holdings to repay debt, regardless of their own wishes.

The Kospi fell for seven consecutive trading days from Oct. 6 through Thursday, sliding to 5,554.22. It then rebounded Friday — its first gain in eight sessions — closing at 5,668.05. Still, funds on the sidelines of the market shrank during the selloff. Investor deposit balances stood at 96.91 trillion won as of Thursday, down 4.1 percent from 101.05 trillion won on Oct. 6.

Some of the money leaving the stock market appears to be flowing into bonds. Retail investors' net purchases of domestic bonds totaled 1.16 trillion won from Oct. 1 through Friday. That fell short of the 2.1 trillion won recorded over the comparable period the previous month, but still exceeded 1 trillion won. Last month's total net purchases of domestic bonds by retail investors reached 4.02 trillion won — the highest since April 2024's 4.53 trillion won, a gap of two years and five months.

As uncertainty in the stock market grew, demand for bonds — seen as a relatively safe asset — held firm. According to SEIBRO, the securities information portal of the Korea Securities Depository, domestic investors' net purchases of US bonds from Oct. 1 to Thursday totaled $1.21 billion. After turning to net selling of $166 million in June, investors swung back to net purchases of $888 million in July and have maintained a buying stance for four consecutive months since.

While the domestic market was turbulent, money flowing into US stocks actually increased. Domestic investors' net purchases of US stocks this month reached $3.5 billion, 3.5 times the $1 billion total for the entire previous month.

The top US stocks bought by domestic investors reflected an aggressive risk appetite. The most heavily purchased US security over the past week was SOXL, a leveraged ETF that tracks three times the daily return of the Philadelphia Semiconductor Index, with net purchases reaching $2.6 billion. KORU, which tracks three times the daily return of the domestic stock market, came in second at $235.36 million, followed by US quantum computing company IonQ at $103.44 million.

Park Sung-jin, a researcher at Hana Securities, advised investors to "maintain core positions in major index products within an ETF portfolio while adjusting satellite positions based on the outlook for interest rates and earnings."