Recent regulations implemented by financial authorities in South Korea, effective July 31, have significantly impacted the trading landscape, particularly for single-stock leveraged ETFs. These regulations increased the minimum deposit requirement for such ETFs from 10 million won to 30 million won. This change led to a dramatic decrease in the trading volume of the 16 single-stock leveraged ETFs, plummeting from 12.4485 trillion won on July 30 to 3.1518 trillion won on July 31, and further to 919.8 billion won by August 7. This decline marked the first time since their listing in May that their daily turnover fell below 1 trillion won.
The reduction in trading of single-stock leveraged ETFs has caused a substantial shift in liquidity. Funds that were previously concentrated in these high-risk products are now flowing into the KOSDAQ market and small- and mid-cap stocks. Analysts from Shinhan Investment Securities and Samsung Securities noted that the single-stock leveraged ETFs had been absorbing liquidity and exacerbating the KOSDAQ's decline. With the shift, the KOSDAQ index saw a notable rebound, increasing 23.89% from July 31 to August 7. During this period, KOSDAQ leveraged ETFs were among the top performers, with some seeing gains over 60%.
This capital rotation has also benefited healthcare, content, and small-cap stocks. The KOSDAQ, small-cap index, and KRX300 Healthcare Index all experienced gains during a two-week period from July 22 to August 4, while large-cap semiconductor stocks like SK Hynix and Samsung Electronics saw declines. The K-Content Index also advanced by 2.7%. This sector rotation is attributed to valuation adjustments and solid earnings performance in non-semiconductor sectors, with analysts observing a reduced concentration of capital in top semiconductor names and a diversification into other market segments. However, there are concerns that this shift could lead to increased volatility in KOSDAQ index leveraged ETFs if speculative funds continue to seek short-term high returns.
