The Financial Supervisory Service advised caution regarding unexpected volatility when investing in exchange-traded products (ETPs) based on commodities. With recent international instability increasing the risk of losses due to fluctuations in commodity prices, careful investment is necessary.
The FSS noted on the 6th, "Fluctuations in commodity prices may continue until issues such as war and tariffs are resolved."
The total asset value of domestic commodity ETPs is 2.7 trillion won, accounting for about 1.3% of the total asset value of ETPs. However, underlying products such as natural gas are concentrated in volatile products, with leverage and inverse products making up 91.1%, and crude oil underlying products at 72.8%.
Recently, commodity prices are becoming increasingly uncertain due to the war between Iran and Israel and the tariff war originating from the United States. In June, the WTI crude oil price index started at $68 per barrel, rose 10.4%, and then plummeted by 14.3% in just one week. U.S. copper futures also demonstrated significant volatility, starting at $5.08 per pound at the end of June, climbing 14.5%, and then dropping 20.3%.
The FSS explained, "The returns on leverage and inverse ETPs are determined by multiplying the returns of the underlying assets by a tracking multiple, so in a volatile commodity market, short-term investment losses can be substantial. Additionally, if asset prices oscillate between increases and decreases, a compounded effect can also occur, resulting in cumulative returns that are lower than the returns of the underlying assets."
As short-term speculative capital inflows increase, the potential for widening premium rates also emerges. The premium rate indicates the difference between the market price of an ETP and its asset value, meaning that during the normalization process after a widening premium rate, investment losses equivalent to the premium could occur.
The FSS stated, "There is a need to closely monitor premium rate information in advance," and "We will continue to monitor for abnormal signs regarding ETP transaction volumes and premium rates."
It added, "If the investment risks increase due to trade conflicts and geopolitical risks, we plan to take response measures such as promptly issuing consumer alerts."