Kospi locked up leads to increase in forced liquidations
The average daily amount of forced liquidations reached 26.5 billion won ($ 22.4 million) from Oct. 1 through Thursday, according to data compiled by the Korea Financial Investment Association. This is the highest level since April 2007, when the average daily volume was 29 billion won. The figure also far exceeded the record seen in the pandemic-affected market in March last year of 16.3 billion won.
Brokerages have the right to sell the borrowed stocks if investors fail to maintain a certain ratio of stock collateral due to falling stock prices. They have investors’ stocks to fill the gap, and as happens when prices are depressed, investors take losses.
When the key index fell 1.82% to close at 2,908.31 points on Wednesday – the lowest level since December 30 of last year – bids were placed at the floor price of over 90 shares listed on Kospi simultaneously around 8:40 a.m. It was the third consecutive session that saw the index slip by more than 1%.
Total retail investor losses from forced sales are expected to increase even more as the Kospi is expected to remain in a box model for some time, market watchers have said. They expect the index to move in a narrow range between 2,900 points and 3,030 points this week.
NH Investment & Securities analyst Kim Young-hwan said the national stock market had “wave highs” to deal with this week. The signal from the US Federal Reserve to reduce its stimulus schedule is one of the main market variables, he said.
“After verifying the event, the local stock market could post a strong rebound with expectations of accelerating economic recovery linked to the improvement of the manufacturing sector and the development of COVID-19 treatments,” Kim said. “But until then, the Kospi index is likely to stay in a box model.”
While strong trading results for listed companies in the third quarter are expected, investor worries about spike in earnings also pose risks, the analyst said. A handful of companies listed on Kospi are expected to release quarterly results this week, but the corporate earnings reporting season is not enough to improve momentum, he added.
By Jie Ye-eun ([email protected])