Korea's record-setting run continues.
Stocks in Seoul are at an all-time high, with the Kospi 200 index up 0.8% in early afternoon trade on Friday.
Just as South Korea is facing its fourth wave of the coronavirus, this is the second wave of the stock market rally. It has risen 23.4% since the start of November, a second leg up after the initial recovery from lows in March.
Korea's export-dominated market has now nearly doubled - up 87% - since its nadir on March 19. That has made up, and then some, for the 35% descent when Korea became the first nation outside China to experience an outbreak of Covid-19.
There are worrying signs amid this fervor. Margin trading is all the rage as retail investors look to lock in gains from a market that knows only one direction. I think we all know how that movie ends.
Korean household borrowing from brokerages and banks rose at a record level in November, much of it driven by loans to buy shares. Household debt in South Korea stands at 100.6% of GDP as of the third quarter, the highest level in the world outside Lebanon. It's the first time that household debt has exceeded the size of the economy.
Reuters profiled a "bittoo," as Koreans who borrow to invest are known. It's a fascinating insight. Retail investors have bought a record net 60 trillion won (US$51 billion) of Korean shares so far this year.
"It's quite stupid not to ride this rally, you won't need a single dollar to buy stocks if you can open an overdraft account," James Lee, a 30-year-old office worker in Seoul, told the news agency. "You can just draw debt on your existing debt."
Lee has a 100-million won (US$85,000) overdraft on his bank account, a 100-million won equity loan on his home, but says the "best debt" he has taken on is another 50-million won he raised as an account-receivable loan made by collateralizing his shares in Samsung and other companies.
Brokerages now have 18.5 trillion won (US$15.6 billion) out on loan for share purchases by retail investors, according to the Korea Financial Investment Association.
The Korean market is dominated by the chip and electronics giant Samsung Electronics KS:005930, the world's largest semiconductor manufacturer. At a market capitalization of US$452 billion, it is almost six times the size of the second-largest component of the Kospi 200, the chipmaker SK Hynix HXSCL.
Samsung alone accounts for 20% of South Korea's entire exports. It has risen 31.4% year to date, driving the index higher, although other Korean exporters have shown similar growth. Official figures out on Friday show that exports jumped 26.9% for the first 10 days of December compared with the same period a year ago. Well above pre-Covid levels, in other words.
The borrowing in Korea to buy shares is fueled by record-low interest rates. The country's central bank, the Bank of Korea, has slashed rates by 0.75 basis points this year to 0.5%.
Of course, the worrying side of all that easy money comes if the market turns.
Ironically, South Korean regulators plan to fine or even jail traders who illegally short shares in the Seoul markets, right at the time it is most difficult to short Korean shares, and most necessary. A few counterpunching hedge funds might imbue a little more sense in a champagne market.
South Korea's top share regulator, the Financial Services Commission, said on Thursday that anyone caught practicing "naked short selling" could be jailed for at least a year or have to pay a fine of up to five times any profits they make.
Naked short selling is not quite as exciting as it sounds. It involves shorting shares without first buying or borrowing the underlying security.
Korean regulators in August extended a ban on all short selling by another six months. It was put in place during the sharp selloff sparked by the coronavirus, but is clearly hardly necessary anymore.
"It is nonsense that they still maintain a short-selling ban in the booming market," Albert Yong, the head of Petra Capital Management, tells the Financial Times. He notes that in the United States, stocks such as Tesla TSLA have raced ahead despite extensive shorting.
Yong said the ban is giving the Seoul markets a black eye. Only Korea, Malaysia and Indonesia have bans in place on short selling. Korean regulators may lift the ban when it expires in March, but will still outlaw naked short selling.
Foreign investors pumped US$4.4 billion into Seoul stocks in November, the FT notes, the highest monthly inflows in seven years. Overseas investors now own more than a third of the market.