South Korean stocks are the world’s No. 1 cautionary tale about the perils of too much leverage, built up too quickly. There is, however, another market in Asia where brokers are lending large sums of money to their clients, piling up systemic risk.
India has had none of Korea’s AI infrastructure-related exuberance. Its benchmark index has been among the world’s worst performing this year. Yet retail investors are racking up debt to buy at stretched valuations. Fully digital stock purchases have made it simple — perhaps a bit too simple — for investors to access credit and for brokers to push it. Besides, with inflation expectations for the near future at above 9%, it makes little sense for savers to leave money in a deposit account earning 6%.
According to latest data from the National Stock Exchange, the so-called Margin Trading Facility book has ballooned to 1.38 trillion rupees ($14 billion). That may not sound like much when compared with the $5 trillion market capitalization of stocks listed on the country’s biggest bourse. It’s also about half of Korea’s peak margin overhang.
More concerning, however, is the 50% jump in investor debt from a year earlier. New-age digital brokers are aggressively competing with their more traditional rivals to scale their client-funding portfolios. Retail and high-net-worth investors are absorbing these funds at record rates. The buildup is starting to look scary.
