Despite high volatility in global equity markets, investor demand for leveraged and inverse exchange-traded funds (ETFs) has continued to expand rather than retreat. Analysts forecast that volatility in individual stocks will intensify once single-stock leveraged ETF products launch later this month.
According to the Korea Financial Investment Association on the 19th, a total of 74,315 investors had completed the "Pre-Trading Education for Single-Stock Leveraged and Inverse Listed Products" between October 28, when the program began, and the 18th. The number of completers rose by 14,599 in just two days. With the listing scheduled for the 27th of this month, investor sentiment toward single-stock leveraged and inverse ETFs has spread rapidly.
The asset management industry has raised concerns that leveraged and inverse ETF flows targeting Samsung Electronics (005930.KS) and SK hynix (000660.KS) could heighten volatility in those stocks. Leveraged ETFs that track twice the daily return must rebalance their portfolios before the market close each day to maintain the target multiple. "Because rebalancing volume is concentrated just before the market close, closing-price volatility for the two stocks could expand," an asset management official said.
The issue is that retail investor appetite for "double-volatility" products as a way to boost returns has deepened across both domestic and overseas market products. According to the Korea Exchange, the "KODEX 200 Futures Inverse 2X" — nicknamed "gop-bus" because it tracks twice the daily decline of the KOSPI 200 index — recorded net purchases of 645.4 billion won last month. That is roughly four times the 161.4 billion won net purchase of "KODEX Inverse," an ETF that tracks the daily decline of the KOSPI index at one times leverage. So far this month, net purchases of the KODEX 200 Futures Inverse 2X reached 277.1 billion won as of the 18th, 42.8 percent more than the 194.1 billion won in net purchases of KODEX Inverse.
The "KODEX Leverage" ETF, which tracks twice the daily move of the KOSPI 200 index, has posted net selling for two consecutive months. Yet purchases this month reached 15.86 trillion won over just 11 trading days, approaching last month's 18.31 trillion won over 22 trading days.
The preference for leveraged products is similar among "Seohak ants" — Korean retail investors who trade U.S. equities. According to the Korea Securities Depository, net purchases of "SNXX," an ETF that tracks twice the daily return of SanDisk, totaled 186.33 million dollars (approximately 280.9 billion won) through the 18th of this month. The product had been net sold by 4,218,543 dollars (approximately 6.4 billion won) last month, but jumped to become the sixth-most net-purchased overseas stock.
