Trading values for single-stock leveraged and inverse ETFs in South Korea plummeted by 90% after new regulations took effect on July 31, raising the minimum cash deposit from $7,200 (10 million won) to $21,600 (30 million won). On August 3, the total trading value for 16 such products, primarily tied to Samsung Electronics and SK hynix, was $891 million (1.2388 trillion won), a drastic drop from $9 billion (12.4485 trillion won) on July 30, the day before the rule change. This reflects a sharp decline in investor participation, particularly from retail investors.
The regulatory change significantly cooled retail investor sentiment. Retail investors' trading value in single-stock products on August 3 stood at $180 million (250.7 billion won), which is about one-quarter of the $670 million (929.9 billion won) recorded on July 31. Compared to the average daily trading value of $2.9 billion (4.0272 trillion won) from the products' launch on May 27 to July 30, the deposit hike reduced retail investor trading by 93.8%. This suggests that the measure effectively curbed speculative retail investment.
Signs emerged that retail investors are exiting the single-stock product market. On August 3, retail investors net-sold $11.5 million (16 billion won) worth of Samsung Electronics leverage products and $20.3 million (28.1 billion won) of SK hynix leverage products. This selling occurred despite declines of 8.76% and 8.79% in the underlying Samsung Electronics and SK hynix shares, respectively, a departure from their previous counter-trend trading strategies. The "SOL SK hynix Futures Single-Stock Inverse 2X," the largest inverse product by net assets, also saw $19.6 million (27.1 billion won) in net selling from retail investors. A financial authority official indicated that this indicates declining investment demand and influence of these products, with a projected gradual decrease in their market capitalization.
In addition to the drop in trading value, trading volumes also decreased sharply. The total trading volume for 14 types of single-stock leverage ETFs based on Samsung Electronics and SK Hynix was 112,418,178 shares on August 3, a 53.5% decline from 241,927,900 shares on July 31. Specifically, the 'KODEX SK Hynix Single Stock Leverage' ETF's volume fell from 116.92 million shares on July 31 to 44 million shares on August 3, approximately a 62.4% reduction. The 'TIGER Samsung Electronics Single Stock Leverage' ETF saw an even steeper decline of 57.1% in volume.
Concerns remain that further supplementary measures may be needed to address market stability, despite the noticeable decrease in investment demand. The KOSPI index itself closed down 5.12% on August 3, highlighting continued market volatility. The government had previously announced additional measures, including restricting individual investment limits, increasing trading fees, introducing simulated trading, and establishing legal grounds for emergency market stabilization. There is also interest in potentially lowering the leverage ratio from the current 2x to 1.5x or even 1.1x under certain market conditions, which could further reduce volatility.
