South Korean investors have significantly reduced their exposure to single-stock leveraged exchange-traded funds (ETFs), with 1.31 trillion won ($910 million) flowing into benchmark-tracking ETFs and high-volatility products experiencing substantial redemptions. For the week of August 7th to 13th, KODEX 200, TIGER U.S. S&P500, KODEX U.S. Nasdaq100, and TIGER 200 collectively attracted 1.31 trillion won. In contrast, KODEX SK hynix Single Stock Leverage, KODEX KOSDAQ150 Leverage, and KODEX Samsung Electronics Single Stock Leverage saw outflows of 187.4 billion won, 176.7 billion won, and 101.2 billion won, respectively, despite posting returns of 11.91% to 32.76%.
Over a one-month period, the trend of investors moving towards index products is even more pronounced. KODEX 200 received 1.72 trillion won and TIGER U.S. S&P500 attracted 1.21 trillion won. Including KODEX U.S. Nasdaq100 and KODEX KOSDAQ150, these four index ETFs pulled in a total of 4.33 trillion won. During the same period, there were outflows from bond ETFs like KODEX Aggregate Bond (AA- and above) Active (down 449 billion won) and RISE Aggregate Bond (A- and above) Active (down 242 billion won), as well as KODEX Samsung Electronics Single Stock Leverage (down 431.4 billion won) and KODEX 200 Futures Inverse 2X (down 255.7 billion won).
Analysts interpret this shift as investors, having experienced market volatility, are moving away from speculative bets on specific stocks or market directions and instead opting for diversification. The daily trading value of KODEX and TIGER single-stock leveraged products tied to Samsung Electronics and SK hynix plummeted by 91.0%, from 8.16 trillion won a month prior to 735.6 billion won. This follows tighter regulations on single-stock leveraged ETFs in Korea, which led to a plunge in their trading value from 13.04 trillion won on July 15th to below 1 trillion won by early August, with some of this activity potentially shifting to overseas leveraged ETFs, particularly those tracking US semiconductor companies. The "balloon effect" has been noted, where demand for leveraged products is pushed from one area to another.
Despite the domestic shift, Korean investors are still exhibiting a strong appetite for risk in overseas markets. For example, the Direxion Daily Semiconductor Bull 3X ETF (SOXL) was a significant draw, with net purchases of $1.83 billion between July 16th and August 23rd. The Direxion Daily TSLA Bull 2X ETF also attracted $204.23 million in net purchases. Overall, leveraged products accounted for 43.4% of Korean investors' trading in their 50 most heavily traded US securities from August 1st through August 23rd, totaling $6.95 billion. However, this risk-taking has led to significant losses for many, with some retail investors reporting 30% declines in their SOXL investments, and a Citi estimate suggesting Korean retail investors lost about $38.7 billion on domestic single-stock leveraged ETFs in the past month. The value of Korean retail investors' US stock holdings fell by $33.7 billion in June and July, despite net inflows of $5.3 billion, far exceeding broader market losses.
