The head of South Korea's Financial Supervisory Service has urged investors to be cautious amid increasing market volatility and risks associated with credit trading.
Lee Chan-jin, the head of South Korea's Financial Supervisory Service, emphasized the need for heightened awareness of investment risks due to expanding volatility in the financial markets. During a recent executive meeting, he mentioned that the uncertainty in the Middle East could prolong the fluctuations in the financial landscape, prompting regulators to reinforce financial stability and the sound management of financial institutions. He particularly highlighted the importance of protecting investors from potential losses tied to credit transactions, which could increase in times of high market volatility.
The concept of forced liquidation, or 'margin call', poses a significant risk to investors who borrow money from securities firms to buy stocks. If the stock price falls below a certain level or they fail to repay the borrowed funds, the securities firms can forcibly sell the investor's shares. This process typically triggers a market-wide sell-off, exacerbating losses for investors and further driving down stock prices. Recent data from the Korea Financial Investment Association indicates that the volume of forced liquidations surged to 82.4 billion Korean won, far exceeding the average of 13.5 billion won observed daily in February, with unpaid margin transactions reaching record levels.
In light of these circumstances, Lee directed firm monitoring of individual investors engaged with leveraged exchange-traded funds (ETFs) to safeguard against major losses due to increased volatility. Furthermore, he called for vigilant scrutiny of unfair trading practices, including the spread of false information by stock influencers through various online platforms and social media. The Financial Supervisory Service aims to assess potential risks across different financial sectors meticulously, keeping a close eye on rising oil prices and exchange rates, their effects on various industries, and corporate liquidity and funding conditions. Lee reassured that until stability in the Middle East is restored, a 24-hour emergency response system will be deployed to monitor both domestic and foreign financial markets closely and take necessary actions when required.
