The KOSPI index, which had surged in a short span since the start of the year, is swinging sharply as it faces the external shock of a U.S.-Iran war. In particular, an unusual pattern has emerged in which the index and large-cap stocks have soared and plunged by more than 10%. Analysts say the impact of exchange-traded funds (ETFs), which have grown to 400 trillion won, has increased behind the sharp swings in the broad index and large caps with hefty market capitalizations.
According to the Korea Exchange (KRX) information data system on the 6th, during Mar. 3–4, when the KOSPI index plunged, the "financial investment" account counted as an institution posted a net sale of 1.311 trillion won in the main bourse. During those two trading days, the KOSPI index fell more than 18%.
During this period, individual investors are estimated to have been net sellers of ETFs that track the KOSPI index. When individuals buy and sell ETFs, the securities firms that act as liquidity providers (LPs) buy and sell the component stocks during the creation and redemption process, and this flow is counted as financial investment supply and demand.
Multiple analyses also said at the start of the year, when the KOSPI index was rallying, that individual demand for ETFs was driving the index higher. Financial investment, which reflects individuals' ETF flows, recorded a net purchase of 20.541 trillion won over January–February.
According to Korea Financial Investment Association statistics, as of the 4th, ETF market net worth totaled 356 trillion won. At the start of the year, the ETF market stood at 298 trillion won, below 300 trillion won, but it swelled by more than 50 trillion won in about two months.
The rapidly expanding ETF market, in turn, is affecting the sharp swings in the index and large caps. A person in the asset management industry said, "Compared with buying and selling individual stocks in the market, trading ETFs has increased sharply recently," and noted, "It appears to be influencing the recent surges and tumbles in the index and large-cap stocks."
In particular, because "basket trading" is used when managing ETFs, the impact on stock prices grows. Basket trading is a block trading method in which more than 10 different stocks are grouped and ordered at once, as if placing multiple issues into one basket.
This is because when a sell basket is executed for underlying assets included in an ETF that tracks a specific index or a specific theme, the shares of the individual corporations included are sold en masse, causing stock prices to fall together.
Lee Sang-heon, Director General of iM Securities' research center, said, "When ETF buy orders come in, purchases proceed in a basket, which can amplify the impact on rising stock prices," and explained, "The increased volatility in large caps such as Samsung Electronics and SK hynix stems not only from individual stock buying but also from the abundance of ETFs that include these names."