As volatility in the domestic stock market increases due to U.S. and Israeli airstrikes on Iran, cases of exchange-traded funds (ETF) trading beyond the reference premium/discount threshold are becoming frequent. Experts said that in a market of sharp ups and downs, ETF market prices can diverge from the actual asset value, so investors must check the premium/discount rate when investing.
The premium/discount rate is the value obtained by dividing the difference between an ETF's market price and the net asset value (NAV) calculated at the end of regular trading hours by the real-time net asset value. A positive (+) premium/discount means the ETF price is set higher than the actual asset value, while a negative (−) reading means it is trading below the actual value. Under current rules, a disclosure obligation arises when Korea asset ETFs exceed 1% and overseas asset ETFs exceed 2%.
According to the Korea Exchange (KRX) on Mar. 12, there were 455 disclosures of ETF premium/discount rate breaches this month (Mar. 3–12). Last month's breaches totaled 372, meaning the figure has already surpassed the prior month's tally with less than half of March gone.
It is analyzed that the gap between ETF market prices and net asset value has widened quickly as stock market volatility increased after the U.S. airstrikes on Iran. Cho Seung-bin, a researcher at Daishin Securities, said, "As the volatility of individual stocks increases, it becomes harder for fair value to be reflected in real time, and the premium/discount rates of ETFs that include them as constituents can also widen."
The domestic stock market has shown extreme volatility this month. KOSPI plunged 7% on the 3rd and 12% on the 4th, then rebounded 9% on the 5th, and the sharp ups and downs continued with a 5% drop on the 9th and a 5% rise on the 10th. KOSDAQ also plunged 14% on the 4th, rebounded 14% on the 5th, fell 4% on the 9th, and rose 3% on the 10th.
When stock market volatility rises, ETF premium/discount rates widen and investment risk increases alongside. If trading in a widened state, investors may buy above or sell below actual value, increasing the chance of unexpected losses. In particular, in a volatile market, sharp price adjustments can occur as ETF prices converge toward NAV, requiring extra caution.
However, some investors are using this volatility as short-term trading opportunities. This is also evident in the rapid rise in ETF turnover (churn). According to the Korea Exchange (KRX), the average turnover of "KODEX 200" this month is about 20%, up to three times the recent one-year average of 7.02%. The turnover of "KODEX Inverse," which bets on declines, was about 98% this month, five times the recent one-year average (22.13%).
Directional trades using leveraged and inverse ETFs are also increasing. This month (Mar. 3–11), total transaction value for ETFs that invest in KOSPI and KOSDAQ index moves was 84.6964 trillion won. Of this, products that bet on index direction, such as leveraged, inverse, and double-inverse ETFs, accounted for 36.3010 trillion won in transactions, about 43% of all index ETF trading.
Experts emphasize that when investing in ETFs in a volatile market, the premium/discount rate must be checked. Researcher Cho said, "If the share price is set below net asset value, it can be a buying opportunity, but in a volatile market like now, you must closely assess whether the expected spread-based gain can be an investment case by looking at the size of the premium/discount."
In particular, there is a view that making investment decisions based solely on the premium/discount rate is also risky. Researcher Seol Tae-hyeon at DB Securities also said, "A plus (+) premium/discount does not necessarily mean the price will fall, nor does a minus (−) guarantee it will rise," adding, "If you buy with that assumption and the premium/discount widens further, unexpected losses can occur."