Retail investors pour 2.8 trillion won into leveraged ETFs in a week

Retail investors have been aggressively snapping up leveraged exchange-traded funds amid a domestic stock market lurching between sharp rallies and steep selloffs.

All four of the most net-purchased ETFs among retail investors over the past week were leveraged products, with combined inflows into major leveraged ETFs reaching 2.8978 trillion won (about $1.9 billion). Analysts warn that leveraged products carry heightened downside risk in volatile markets.

According to Korea Exchange on Friday, Kospi volatility this year has drawn comparisons to the global financial crisis. Sidecar mechanisms — automatic trading curbs — have been triggered 25 times on the Kospi so far this year, 13 on the buy side and 12 on the sell side. That is just one short of the 26 triggers recorded in all of 2008, when the global financial crisis struck.

Rather than retreating, retail investors appear to be actively exploiting the market swings, pouring money into leveraged ETFs each time share prices plunge in a bet on a rebound. According to ETF CHECK, the most net-purchased ETF by retail investors over the past week as of Thursday was the KODEX SK Hynix Single Stock Leverage, with net purchases reaching 803.3 billion won. The same ETF posted a return of minus 20.89 percent over the period.

Leveraged ETFs dominated the broader net-purchase rankings as well. Over 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 Kosdaq150 Leverage (286.3 billion won) and TIGER Samsung Electronics Single Stock Leverage (246.2 billion won).

Combined inflows into the top six leveraged ETFs alone reached 2.8978 trillion won. The concentration of capital in 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 shown particularly strong growth. As of Thursday, the combined net asset value of seven Samsung Electronics single-stock leveraged ETFs stood at 3.6044 trillion won, while the seven SK Hynix single-stock leveraged ETFs had a combined net asset value of 5.178 trillion won.

"Their net asset values were each in the mid-1 trillion won range at the time of listing, but as of the 10th of this month they have grown into major products — Samsung Electronics at around 4 trillion won and SK Hynix at around 5 trillion won," said Im Eun-hye, a researcher at Samsung Securities.

Analysts are urging caution about the potential for further volatility. Lee Jae-won, a researcher at Yuanta Securities Korea, described the current market as "a phase of profit-taking and volatility driven by a combination of concerns over AI infrastructure supply bottlenecks, semiconductor concentration, overheating in leveraged fund flows and geopolitical risk."

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

The upcoming Federal Reserve monetary policy meeting is also seen as a key variable. The Federal Open Market Committee will convene Tuesday and Wednesday next week — the first FOMC since Kevin Warsh took office as Fed chair.

Han Ji-young, a researcher at Kiwoom Securities, said "there are risks lurking everywhere that cannot be ignored, including supply-demand pressure from SpaceX and caution ahead of the June FOMC," but added that "the stock market is also building resilience as it repeatedly weathers corrections accompanied by high volatility."