Société Générale believes South Korea's KOSPI stock market has room for further recovery despite a rise in leveraged trading [1, 2].
This outlook is significant because it balances the potential for growth against the inherent instability caused by margin borrowing. While cheap valuations provide a floor for the market, high levels of leverage often lead to sharper corrections if sentiment shifts.
Frank Benzimra, head of Asia equity strategy at Société Générale, said the market rebound remains supported by inexpensive valuations [1]. This fundamental strength suggests that the current trajectory of the KOSPI could continue upward, even as investors rebuild their leverage positions.
However, the analyst said that the return of margin borrowing and leveraged trading could increase market volatility [1, 2]. When investors borrow heavily to fund their positions, small price drops can trigger forced liquidations, which often accelerate downward trends.
Despite these risks, the firm maintains that the recovery potential outweighs the immediate threats posed by leverage. The interplay between low valuations and increasing risk-taking continues to define the current environment for South Korean equities [1].
“South Korea's stock-market rebound has further upside despite rising margin borrowing.”
The KOSPI is currently experiencing a tension between fundamental value and speculative behavior. While low asset prices attract long-term investors, the increase in leverage suggests a shift toward short-term speculation. This creates a fragile recovery where the market may climb higher, but is increasingly susceptible to sudden, volatile swings if leverage is unwound quickly.
