"We used to look for which stock would rise. Now we watch which ETF the money is flowing into."
That line is increasingly common in Seoul’s Yeouido financial district as South Korean stocks extend a rally and the exchange-traded fund market expands quickly. Rather than picking individual names, more money is moving into ETFs that track indexes or broad sectors, shifting the market’s center of gravity. Industry officials say the domestic ETF market is accelerating even as external uncertainty, including war in the Middle East, persists.
As of May 7, Korea Exchange data and other sources show domestic ETF net assets topped 400 trillion won last month. After ETFs were introduced in South Korea in 2002, it took 11 years for net assets to exceed 100 trillion won. It then took two years to reach 200 trillion won and six months to reach 300 trillion won. Net assets have now surpassed 400 trillion won within a few months, underscoring the faster pace of growth.
Demand has risen as the KOSPI has repeatedly set record highs. Investors are increasingly favoring ETFs that provide exposure to the broader market and industries, rather than trying to manage volatility in individual stocks. A brokerage official said inflows are rising sharply as investors use ETFs to bet on the overall market trend in a rising market.
Trading has also surged. On some sessions, ETF turnover has grown to more than half the value traded in the KOSPI cash market. Inflows have continued into semiconductor, artificial intelligence and secondary-battery ETFs, and trading has been active in leveraged ETFs that bet on bigger gains.
Retail investors and pension money are key drivers. ETF investing has expanded rapidly in individual retirement pension (IRP) and pension savings accounts, bringing steady long-term funds into the market.
Analysts also point to financial regulators’ moves to strengthen responses to stock manipulation. As caution grows about risks tied to single-stock investing, some investors are leaning more toward ETFs for their diversification benefits.
Competition among asset managers is intensifying. Major firms are rolling out a range of thematic ETFs, including semiconductors, AI, high-dividend and covered-call products, to capture demand. An industry official said ETFs have shifted from a supplementary tool to a core product for retail investors.
Some market participants say ETF inflows are now helping support the broader stock-market rise. A brokerage official said that when money enters ETFs, liquidity providers and authorized participants buy the underlying shares, improving supply-and-demand conditions in the cash market.
Still, some warn about crowding into certain thematic ETFs. A sharp rise in leveraged and inverse ETF trading could increase market volatility. Even so, industry officials expect the ETF market’s growth to continue for the time being alongside the stock-market uptrend.
* This article has been translated by AI.
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