The stock market is reflecting a trend similar to the way people develop a taste for spicier food. When visiting a noodle shop or a tteokbokki restaurant, customers can choose from mild, medium, spicy, and extra spicy options. Initially, even the mild flavor can feel quite hot, causing one to sweat and think, "Next time, I should go for something less spicy." However, as time passes, that initial sensation fades, and soon, the same flavor no longer satisfies. The thought of trying just one level spicier begins to emerge.
Spicy flavors can be addictive. As the palate becomes accustomed to the heat, it seeks out stronger flavors. What was once a challenge, like spicy tteokbokki, eventually leads to a search for dishes like fire chicken or extremely spicy options. The palate, now adapted to the stimulation, finds previous levels of spice to be bland. Consequently, the demand for spiciness becomes increasingly refined. The average flavor no longer suffices, and there is a craving for stronger tastes and more intense sensations.
Currently, the stock market appears to be following a similar trajectory. Funds that once sought safety in bank deposits and savings accounts have shifted to the stock market, but even that is no longer satisfying. Money is rapidly flowing into leveraged ETFs, inverse ETFs, futures products, and single-stock derivatives. The market's appetite for returns is increasingly leaning toward more stimulating options.
A notable example is the launch of the Samsung Electronics and SK Hynix double-leverage inverse products, which attracted 2 trillion won (approximately $1.5 billion) in transactions within just one day, with total trading volume reaching 10 trillion won. The surge in trading volume for single-stock leveraged ETFs, particularly for Samsung Electronics and SK Hynix, indicates that the market is transitioning from a simple bull market to a phase of high-risk betting.
It is important to note that the stock market has always been paradoxical. The most dangerous moments often occur not when fear is rampant, but when everyone is overly optimistic. As the KOSPI index continues to set record highs, ushering in the "8,000-point era," the market atmosphere is nearing a state of excitement. The issue is not merely an increase in available funds but a shift in the nature of that money.
In the early stages of a bull market, investors tend to be relatively cautious, analyzing corporate performance and industry outlooks before investing in blue-chip stocks or index products. However, as the bull market extends and stories of profits circulate, the mood shifts. Investors who initially thought, "Let’s hold onto good companies for the long term," begin to wonder, "Is there a way to earn more quickly and significantly?" At that moment, the focus of the market shifts from physical investments to products that bet on direction and volatility.
The recent behavior of the Korean stock market exemplifies this trend. The expansion of the ETF market itself is not inherently negative; the growth of low-cost, diversified investment tools is a positive development for capital markets. However, the direction of this growth is concerning. There is a rapid increase in leveraged products that amplify the rise and fall of specific stocks, inverse products that bet on declines, and futures-based ETF trading. This indicates that investors are beginning to bet on volatility and short-term returns rather than corporate value.
Particularly alarming is the concentration on single stocks. While Samsung Electronics and SK Hynix are representative of South Korea's strong economy, even the best companies do not see their stock prices move in a straight line. Prices can fluctuate based on earnings expectations, valuations, global economic conditions, interest rates, and supply-demand changes. Betting on the daily direction of a specific stock with high leverage approaches speculation rather than long-term investment. While profits can be maximized when prices rise, losses can also escalate exponentially if the direction shifts.
History has shown this pattern repeatedly. During the KOSPI's rise in 2007, individual investors flocked to ELWs and the futures and options markets. The optimism of the bull market fostered the belief that "betting harder would yield greater returns," but when the financial crisis hit the following year, losses for high-risk product investors snowballed. The same was true in 2021, when the leveraged ETF craze took hold amid ultra-low interest rates and liquidity, but losses doubled as rapid interest rate hikes and corrections in growth stocks began in 2022.
Of course, there is no need to criticize the act of seeking returns while taking risks; that is the essence of capital markets. However, what the current market must be wary of is not the risk itself, but the desensitization to risk. The urgency of thoughts like, "Everyone else is making money," and "If I miss this opportunity, I will fall behind" is driving investors toward increasingly stimulating products.
A palate accustomed to mild flavors seeks out stronger spices. However, there are limits to spiciness. If the palate cannot handle it, it will ultimately lead to distress. Similarly, if excessive risk preference accumulates in the market, even minor adjustments can cause significant shocks. Losses can grow exponentially, while recovery becomes much more challenging. It may be time to consider a "spice detox" for the market.
* This article has been translated by AI.
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