South Korea's stock market boom shows dangerous signs of overheating
South Korea’s stock market has seen explosive growth over the past year, nearly tripling in value. But signs of overheating are now flashing as key indicators hit extreme levels. Investors and regulators are watching closely as risks build in one of Asia’s most active markets. The Buffett Indicator—a measure comparing stock market value to GDP—has surged past 200 percent in Korea. This level far exceeds historical averages and signals potential overvaluation. Meanwhile, borrowing to bet on stocks has soared, with outstanding margin loans reaching around 36 trillion won.
Stock lending balances have also ballooned to 180 trillion won, reflecting heavy speculative activity. Net short-selling positions now stand at roughly 28 trillion won, suggesting many traders are betting against the market’s rally. The National Pension Service (NPS), Korea’s largest institutional investor, has reportedly overshot its domestic equity target by more than 10 percentage points.
Leveraged trading has become especially frenzied. Turnover in leveraged ETFs has spiked to as high as 70 percent this year, a sharp increase from previous levels. Adding to the risk, the government is preparing to allow high-multiple leveraged products tied to major firms like Samsung Electronics and SK hynix. These moves come as Warren Buffett recently cautioned that global markets had reached a 'gambling frenzy' peak.
A potential rebalancing of the NPS portfolio could trigger a major selloff. With the market already stretched, any large-scale adjustment by the pension fund might accelerate a downturn. The combination of extreme valuations, heavy borrowing, and speculative trading has put Korea’s market under strain. If the NPS reduces its equity holdings or leveraged bets unwind, the recent rally could reverse sharply. Regulators and investors are now bracing for possible volatility ahead.
