The stock market is reflecting a trend similar to the escalating levels of spiciness found in food. Just as diners at a noodle shop or tteokbokki stand choose from mild to extremely spicy options, investors are moving from safer investments to riskier ones. Initially, even mild flavors can feel intense, leading one to think, "I should choose something less spicy next time." However, over time, that initial thrill fades, and the desire for stronger flavors emerges, prompting thoughts of trying something spicier.
Spiciness is addictive. As taste buds become accustomed to the heat, they seek out even stronger flavors. What was once a challenge, like spicy tteokbokki, eventually leads to cravings for dishes like fire chicken or mala hot pot. This adaptation causes previous levels of heat to feel bland, pushing the search for more intense experiences.
The current stock market resembles this pattern. Funds that once sought the safety of bank deposits have shifted to stocks, but even that is no longer satisfying. Money is rapidly flowing into leveraged ETFs, inverse ETFs, futures products, and single-stock derivatives, indicating a growing appetite for more aggressive returns.
For instance, within just one day of launching the Samsung Electronics double-leverage inverse product, 2 trillion won (approximately $1.5 billion) was traded, with total transactions reaching 10 trillion won. The surge in trading for single-stock leveraged ETFs, particularly for Samsung Electronics and SK Hynix, highlights a shift in the market toward high-risk betting.
It is crucial to remember that the stock market is often paradoxical. The most dangerous moments do not occur when fear is rampant, but rather when optimism is at its peak. As the KOSPI index continues to set record highs, entering the so-called "8,000-point era," the market sentiment is nearing a state of excitement.
The issue is not merely an influx of money; it is the changing nature of that money. Early investors in a bull market tend to be 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 focused on holding quality companies start to wonder, "How can I make money faster and bigger?" At this point, 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 options 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 gains or losses of specific stocks, inverse products that bet on declines, and futures-based ETF trading. This indicates that investors are beginning to prioritize volatility and short-term returns over corporate value.
Particularly alarming is the concentration on single stocks. While Samsung Electronics and SK Hynix are representative of South Korea's strong economy, stock prices do not move in a straight line. They can fluctuate based on performance expectations, valuations, global economic conditions, interest rates, and supply-demand changes. Betting on the daily direction of specific stocks with high leverage approaches speculation rather than long-term investing. While profits can be maximized when prices rise, losses can also multiply exponentially if the direction shifts.
History has shown that such scenarios repeat. 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 a belief that "betting harder would yield greater returns," but when the financial crisis struck the following year, losses for high-risk investors snowballed. The same pattern occurred in 2021, when the leveraged ETF craze took hold amid ultra-low interest rates and liquidity, only to see losses deepen with the rapid interest rate hikes and corrections in growth stocks in 2022.
Of course, the act of seeking returns while taking risks should not be condemned; it is the essence of capital markets. However, what the current market must guard against is not risk itself, but insensitivity to that risk. The urgency of thoughts like, "Everyone else is making money," or "If I miss this opportunity, I will fall behind," is driving investors toward increasingly risky products.
Just as a palate accustomed to mild flavors seeks out stronger spices, there is a limit to how much heat one can handle. If the spice becomes too intense, it can lead to discomfort. Similarly, if excessive risk-taking accumulates in the market, even small adjustments can trigger 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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