South Korean retail investors who borrowed heavily to chase a second-half market rally are facing a backlash as margin calls surged to record levels in November. Forced sales by securities firms jumped as many investors sought short-term gains through leveraged trades.

The Financial Investment Association said the share of actual margin calls relative to unsettled margin balances averaged 1.49 percent in November, the highest this year. The figure was more than double the first-half average of 0.5 to 0.6 percent. On November 25 alone, forced sales reached 37.3 billion won, the second-largest daily total this year, and the margin-call ratio climbed to 3.8 percent.

All three days this year when daily margin calls exceeded 30 billion won occurred in November, with 38 billion won on the 7th, 33.2 billion won on the 18th and 37.3 billion won on the 25th. Seven of the 10 largest margin-call days of the year also fell in the month.

The surge came as many investors increased leverage while the KOSPI attempted to stabilise near the 4,000 level. The index then fell sharply amid concerns over an AI bubble, a strong dollar and delays in interest rate cuts, leaving leveraged positions exposed.

The increase in margin calls has added downward pressure on share prices. Margin calls occur when the value of shares bought with borrowed funds falls below required collateral levels or when payment deadlines are missed. Securities firms then sell the shares at the lower price limit before the market opens the next day.

These forced sales accelerate price declines. The drop leaves other accounts short of collateral and triggers further margin calls.

Despite concerns over forced selling, leveraged trading remains strong. The Financial Investment Association said KOSPI margin financing balances surpassed 26 trillion won in early November and hit 26.85 trillion won on November 20, marking a record high for four straight sessions.

The balance has nearly tripled from the 9 trillion won level at the start of the year. The rise indicates many investors still view the pullback as a buying opportunity and are borrowing to enter the market.

Bank credit loans also posted the biggest increase in four years and four months. As markets swung, retail investors borrowed to buy on dips. Financial industry data showed household loans at the five major banks reached 768.15 trillion won as of November 27, up 1.53 trillion won for the month.

Credit loans rose 1.14 trillion won, the largest increase since July 2021. Most of the growth came from overdraft accounts held by retail clients. Overdraft balances jumped 917.1 billion won in November, accounting for 80.5 percent of the rise in credit loans.

Analysts warned that the market remains uncertain in December. They cited persistent concerns about overheating in the AI sector and uncertainty over the US Federal Reserve’s rate trajectory, which could heighten volatility.

Eun-taek Lee of KB Securities said the KOSPI may be forming a bottom but its exact level is difficult to predict. Su-yeon Kim of Hanwha Investment and Securities said investors should focus on risk management and adjust portfolios rather than expect index gains in December.