Inverse ETFs Surge 60% After Facing Delisting Threat

Just a month ago, inverse exchange-traded funds (ETFs) were facing potential delisting, but they have now emerged as the biggest beneficiaries of the recent market downturn. While the KOSPI index surged, the inverse ETFs, which had plummeted to penny stock levels, have recorded over 50% returns during the recent market correction. In contrast, leveraged ETFs, which bet on rising markets, have seen declines of more than 60%, highlighting a stark contrast in investor fortunes.

According to the Korea Exchange, from June 19 to July 21, inverse ETFs dominated the top-performing products. The highest return was recorded by the KIWOOM 200 Futures Inverse 2X, which rose by 58.73%. Other notable performers included KODEX 200 Futures Inverse 2X (57.81%), RISE 200 Futures Inverse 2X (56.72%), TIGER 200 Futures Inverse 2X (55.71%), and PLUS 200 Futures Inverse 2X (51.11%), all exceeding 50% gains.

This outcome is a stark reversal from just a month ago when the KOSPI surpassed the 9,000 mark, reaching record highs. At that time, inverse ETFs were rapidly incurring losses, and some smaller products faced the possibility of being designated as management items due to declining total net assets. Concerns about a potential delisting crisis loomed as prices fell to around 100 won.

However, as the market experienced a sharp decline, the inverse ETFs quickly transformed into the top-performing products. Investment also surged, with KODEX 200 Futures Inverse 2X recording 21.2316 trillion won in trading volume, the highest among inverse products. Funds also flowed into products that invest in individual stock declines, with PLUS Samsung Electronics Futures Single Stock Inverse 2X recording 6.3681 trillion won and SOL SK Hynix Futures Single Stock Inverse 2X at 5.9509 trillion won, attracting significant investor interest.

In contrast, leveraged ETFs faced a dismal performance. Most of the bottom-performing products were leveraged ETFs. The 1Q SK Hynix Futures Single Stock Leveraged ETF saw the largest drop, plummeting 61.93% over the month. Other leveraged products, including ACE, KIWOOM, TIGER, and SOL SK Hynix Single Stock Leveraged ETFs, also reported losses around 61%. Leveraged products related to Samsung Electronics, such as KODEX Samsung Electronics Single Stock Leveraged (-54.78%) and TIGER Samsung Electronics Single Stock Leveraged (-54.95%), also suffered significant declines.

Market analysts view the performance over the past month as a clear illustration of the high volatility associated with leveraged and inverse ETFs. While correctly predicting market direction can yield substantial short-term gains, misjudgments can lead to rapid losses. The fact that inverse ETFs, which were once at risk of delisting, have now risen to the top of the performance charts in just a month underscores the extreme volatility in the domestic stock market.

However, analysts suggest that rather than betting on further declines, investors should focus on the potential for a market rebound. On the same day, the KOSPI opened with a gain of over 4%, recovering above the 7,000 mark and showing signs of improved investor sentiment.

Global investment bank Morgan Stanley recently stated in a report that despite the KOSPI's sharp decline, it has not entered a technically bearish market and maintained its target index of 9,000. While the recent drop in semiconductor stocks has led the index lower, valuations are approaching historical lows.