South Korea Investor Leverage Unlikely to Return to Previous Highs

South Korea investor leverage is unlikely to return to levels seen during the Kospi's first-half rally even if equities resume their advance, according to Bloomberg Intelligence analyst Rena Kwok.

Investors who borrowed heavily to pursue stock-market gains are reassessing their tolerance for risk following sharp market corrections and substantial losses, Kwok said.

Regulators have tightened controls covering leveraged exchange-traded funds, while brokerages, banks and insurance companies have strengthened their internal risk limits.

The earlier market rally encouraged increased margin lending, unsecured bank borrowing and insurance policy loans as retail investors sought additional capital for equity purchases.

Kwok said tighter controls, recent investment losses and constraints on banks' lending capacity should prevent another rapid accumulation of leverage, potentially reducing one source of volatility in the South Korean equity market.