As the domestic stock market experiences significant corrections, individual investors are opting for leveraged exchange-traded funds (ETFs) rather than inverse ETFs that bet on declines. During a period when semiconductor and single-stock leveraged ETFs plummeted by 60% to 70%, retail investors continued to purchase leveraged ETFs, viewing the downturn as a buying opportunity.
According to the Korea Exchange, from June 1 to July 29, inverse ETFs like KODEX 200 Futures Inverse 2X and TIGER 200 Futures Inverse 2X ranked among the top performers in domestic ETF returns. As the KOSPI and other domestic indices remained weak, these products recorded returns of 50% to 60%.
In contrast, most of the bottom performers during the same period were leveraged ETFs. The semiconductor leveraged ETF saw a decline of around 70%, while the single-stock leveraged ETFs for Samsung Electronics and SK Hynix dropped by over 60%. Leveraged ETFs are designed to track double the daily returns of their underlying indices, leading to greater volatility in returns as market fluctuations increase.
Despite the poor performance, investor funds have flowed into leveraged ETFs. During this period, individual investors net purchased 1.1584 trillion won worth of KODEX Leverage. Foreign investors also net bought 243.5 billion won, while institutions net sold 1.3803 trillion won.
On July 28, when the KOSPI dropped more than 10%, individual investors made significant net purchases of leveraged ETFs. Even on a day when the KOSPI fell by 12% during trading, retail investors continued to buy leveraged ETFs. Individuals net purchased 266 billion won of KODEX Leverage and 64.8 billion won of KODEX200. Conversely, KODEX 200 Futures Inverse 2X saw net sales of 92.8 billion won, KODEX Inverse 28.7 billion won, and TIGER 200 Futures Inverse 2X had net sales of 3.7 billion won. Institutions net sold 228.5 billion won of KODEX Leverage and 134.3 billion won of KODEX200, but net bought KODEX 200 Futures Inverse 2X and KODEX Inverse for 104.4 billion won and 17.1 billion won, respectively, along with 2.3 billion won of TIGER 200 Futures Inverse 2X.
In this context, analysts in the securities industry note that the losses from leveraged ETF investments have significantly increased due to recent market volatility. Mohamed Apabai, head of Asia-Pacific trading strategy at Citigroup Global Markets, estimated in a recent market commentary for institutional investors that the cumulative losses for individual investors in leveraged ETFs based on Korean assets have reached approximately $38.7 billion (about 56.3 trillion won). The market capitalization of leveraged ETFs based on Korean assets has decreased from $52.5 billion on June 22 to around $19 billion recently, with significant declines noted in SK Hynix, KOSPI 200, and Samsung Electronics leveraged ETFs.
Mohamed Apabai suggested that the market capitalization of leveraged ETF-related products could fall below $8 billion before the end of the year, stating, "Individual investors have not yet begun to panic sell," and added, "It is too early to shift to an optimistic view on the KOSPI."
* This article has been translated by AI.
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