Retail investors pour 2.8 trillion won into leveraged ETFs in a week amid wild market swings

Retail investors have been aggressively snapping up leveraged exchange-traded funds even as the domestic stock market lurches through a dizzying cycle of sharp gains and steep losses.

According to Korea Exchange, sidecar trading curbs have been triggered nine times in the Kospi and Kosdaq markets so far this month — four sell-side and five buy-side — while circuit breakers have been activated twice. All of this has occurred within the past nine trading sessions.

The level of volatility is drawing comparisons to the global financial crisis. Sidecar activations on the Kospi have reached 25 this year — 13 on the buy side and 12 on the sell side — just one short of the 26 recorded for all of 2008, when the global financial crisis struck.

Retail investors appear to be actively capitalizing on the turbulence. Each time share prices plunge, they pour money into leveraged ETFs, betting on a rebound.

According to ETF CHECK, the most heavily net-purchased ETF by retail investors over the past week as of Thursday was the KODEX SK Hynix Single-Stock Leverage ETF, with net purchases reaching 803.3 billion won (about $526 million). The product posted a return of minus 20.89 percent over the same period, yet retail investors treated the deepening losses as a buying opportunity.

Leveraged ETFs dominated the broader net-purchase rankings as well. During the same period, retail investors concentrated their buying in KODEX Leverage (609.6 billion won), TIGER SK Hynix Single-Stock Leverage (519.2 billion won), KODEX Samsung Electronics Single-Stock Leverage (433.4 billion won), KODEX Kosdaq 150 Leverage (286.3 billion won) and TIGER Samsung Electronics Single-Stock Leverage (246.2 billion won).

Combined inflows into the top six leveraged ETFs reached 2.8978 trillion won. The concentration of capital into high-risk products reflects a widespread belief that the recent market correction is short-lived, coupled with expectations of a rebound.

Single-stock leveraged ETFs tied to Samsung Electronics and SK Hynix have been particularly notable for their growth. Even as volatility in semiconductor shares has intensified, the net assets of the related ETFs have swelled to record highs.

As of Thursday, the combined net assets of seven Samsung Electronics single-stock leveraged ETFs stood at 3.6044 trillion won. The seven SK Hynix single-stock leveraged ETFs had combined net assets of 5.178 trillion won.

"When they were first listed, net assets for each were in the mid-1 trillion won range, but as of June 10 they have grown into major products — Samsung Electronics at 4 trillion won and SK Hynix at 5 trillion won," said Im Eun-hye, a researcher at Samsung Securities.

Analysts in the securities industry view the current market as a correction driven by short-term overheating, but warn that the risk of further volatility cannot be dismissed.

"The current market is in a phase of profit-taking and volatility driven by a combination of factors: concerns over AI infrastructure supply bottlenecks, excessive concentration in semiconductor stocks, overheating in leveraged fund flows, and geopolitical risk," said Lee Jae-won, a researcher at Yuanta Securities Korea.

He added that if inflation data comes in above expectations, or if concerns about weak earnings from major big-tech companies or monetary tightening resurface, the risk of wider volatility remains. He also noted that if geopolitical risks ease and related concerns are resolved, there is ample room for an upside move.

The US Federal Reserve's monetary policy meeting next week is also seen as a key variable. The Federal Open Market Committee will convene June 16-17 local time — the first FOMC meeting since Kevin Warsh took office as Fed chair.

Han Ji-young, a researcher at Kiwoom Securities, said supply-demand pressure from the SpaceX listing on Friday and caution ahead of the June FOMC are among the factors that cannot be ignored. She added that as the stock market repeatedly goes through corrections accompanied by high volatility, its resilience is also building.