Retail investors who bought exchange-traded products tracking Samsung Electronics and SK hynix share prices at twice the daily rate lost more than 6.3 trillion won ($4.75 billion) in just two and a half months after the products launched. Losses were concentrated among investors in their 40s and 50s, while those aged 70 and older suffered an average loss of about 29.94 million won per account.
People Power Party lawmakers Park Sung-hoon and Park Jun-tae of the National Assembly's Political Affairs Committee received data from the Financial Supervisory Service showing that retail investors in single-stock leveraged ETPs lost a combined 6.31 trillion won between May 27 and Aug. 14.
The Financial Supervisory Service analyzed trading data from 10 comprehensive financial investment firms, including Korea Investment & Securities, Mirae Asset Securities, NH Investment & Securities, Samsung Securities and Kiwoom Securities.
About 546,000 accounts traded the products at least once during the period. Of the total losses, 2.32 trillion won were realized losses locked in through actual trades, while 3.99 trillion won were unrealized losses on positions still held.
Investors in their 40s and 50s accounted for 3.9 trillion won of the losses combined, with those in their 40s recording the largest losses of any age group.
Investors in their 40s posted total losses of 2.05 trillion won across 165,200 accounts — the highest of any age group in both number of trading accounts and total loss.
Those in their 50s lost 1.87 trillion won across 158,000 accounts. Combined, the two groups accounted for 3.92 trillion won, or 62.1 percent of total losses.
Investors in their 30s lost 1.09 trillion won. Those in their 60s followed with 805.9 billion won, investors aged 70 and older with 293.4 billion won, and those in their 20s with 195.8 billion won. Even investors under 20 recorded losses of 8.2 billion won.
Older investors stood out when losses were measured on a per-account basis.
Investors aged 70 and older lost 293.4 billion won across 9,800 accounts, translating to an average loss of about 29.94 million won per account.
That is 2.6 times the overall average of 11.56 million won per account. Investors in their 60s also fared poorly, losing 805.9 billion won across 61,000 accounts for an average of 13.21 million won per account.
While investors in their 40s and 50s dominated total losses due to their larger number of accounts, the per-account burden was heaviest among those aged 70 and older.
The figures are based on trading accounts, not individual investors. Because one person may have used multiple accounts, the account count may not correspond to the actual number of investors.
Realized losses grew by 360.4 billion won in just two weeks, while unrealized losses edged slightly lower.
Realized losses from actual trades accelerated sharply in August.
Realized trading losses stood at 1.96 trillion won at the end of July before rising to 2.32 trillion won by Aug. 14.
That represents an increase of 360.4 billion won in just two weeks, a rise of 18.4 percent.
Over the same period, unrealized losses on positions still held fell slightly, from 4.04 trillion won to 3.99 trillion won, a decrease of 50.7 billion won.
Although unrealized losses edged down, the sharper rise in realized losses pushed total losses higher — from 6 trillion won to 6.31 trillion won, an increase of 309.7 billion won.
The data suggest some investors may have sold their positions at a loss to exit the products. However, the increase in realized losses reflects multiple factors, including share price movements at the time of each trade.
The figures do not include trading gains or losses, or changes in unrealized positions, after Aug. 14. The actual scale of investor losses will have shifted since then depending on subsequent movements in Samsung Electronics and SK hynix share prices and investors' trading decisions.
The rapid accumulation of losses in single-stock ETPs stems from the high volatility of semiconductor shares and the structural characteristics of leveraged products.
Single-stock leveraged ETPs are designed to deliver returns linked to the daily share price movements of specific companies such as Samsung Electronics and SK hynix.
The products — which include both exchange-traded funds and exchange-traded notes — are structured to track the daily percentage change of the underlying asset at twice the rate, either in the same direction or the inverse.
A 2x leveraged product targeting the upside aims to gain about 10 percent on a day the underlying share rises 5 percent. Conversely, a 5 percent drop in the share price can produce a loss of about 10 percent.
When share prices swing sharply, both gains and losses for investors can compound quickly.
Because leveraged products move based on daily returns, holding them over an extended period can cause the product's cumulative return to diverge from that of the underlying asset.
When share prices alternate between gains and losses, the daily compounding of returns can erode the principal. Financial regulators describe this as the "negative compounding effect."
Concentration risk from investing in a single stock adds another layer of danger. A change in a specific company's earnings, industry conditions or market environment can sharply undermine investment performance.
When the single-stock leveraged products launched in May, financial regulators flagged price volatility, the compounding effect and the gap between market price and net asset value as key risk factors.
As volatility in semiconductor-related stocks intensified, regulators tightened investor protection measures.
The Financial Services Commission, the Financial Supervisory Service and other relevant agencies announced on July 16 that they would temporarily suspend new listings of single-stock leveraged products and ban advertising for them.
Regulators also raised the minimum deposit required to trade the products. Previously, investors could trade by holding at least 10 million won in securities including shares, ETFs and bonds. From July 31, the requirement was tightened to at least 30 million won in cash.
Authorities also said they would tighten standards for managing the gap between market prices and net asset values, and strengthen investor pre-education and risk disclosure requirements.
Financial regulators said the products are structured to amplify both gains and losses given their potential for outsized returns on a small investment, and stressed that investors must consider their own risk tolerance and understanding of the products before trading.
The data confirmed that retail investor accounts lost more than 6 trillion won in the 80 days after the products launched. A significant portion of total losses remains as unrealized losses on positions not yet sold, meaning the final scale of losses will depend on future share price movements and investors' trading decisions.
rainbow@heraldcorp.com
