As volatility in domestic and overseas stock markets has intensified in the wake of the war between the United States and Iran, individual investors are mounting across-the-board bets on leveraged products in both countries' markets. Behind the rapid growth of the exchange-traded fund (ETF) market, the tilt toward high-risk products such as leveraged ETFs is deepening, prompting urgent warnings for investor caution.
According to the Korea Securities Depository (KSD) Seibro securities information portal on the 21st, domestic individual investors made a net purchase of $1,014,140,000 (about 1.5206 trillion won) worth of "Direxion Daily Semiconductor Bull 3X Shares (SOXL)" in the U.S. stock market this month (Mar. 2–18). This was the largest net purchase among U.S. stocks this month.
During the same period, individual investors also bought $124,620,000 (about 186.8512 billion won) worth of "Direxion Daily South Korea Bull 3X (KORU)," which triple-tracks the Korean stock market index. The product ranked No. 2 among foreign stocks by net purchases.
SOXL is a representative high-risk leveraged ETF that tracks triple the return of the Philadelphia Semiconductor Index. KORU likewise tracks triple the return of the "MSCI Korea 25/50" index centered on Korean blue chips such as Samsung Electronics and SK hynix. Korean investors are actively using leveraged products even in the U.S. market.
Ko Kyung-beom of Yuanta Securities Korea said, "It appears to be a strategy to maximize returns by using the expanded volatility caused by the Middle East war."
The tilt toward leverage is also evident in the domestic market. According to the Korea Exchange (KRX), since the 3rd through the 18th of this month, individual investors made a net purchase of 322.18084 billion won of "KODEX Leverage," which tracks twice the KOSPI 200's daily return. "KODEX KOSDAQ150 Leverage," which tracks twice the KOSDAQ150's daily return, also drew 259.52619 billion won in individual net purchases.
Inflows of new investors into the leverage market seeking high returns are also surging. According to the Financial Supervisory Service, the number of individuals who completed the mandatory pre-education required to invest in leveraged and inverse exchange-traded products (ETPs) reached 299,896 in January–February this year alone. That figure exceeded last year's total completions (205,403) by 46% in just two months. On a monthly average basis, it represents a steep increase of 8.8 times from a year earlier.
Analysts say this trend is coinciding with the growth of the ETF market. As of yesterday (the 20th), the average daily trading value of ETFs this month was 21.8623 trillion won, about 70% of the KOSPI's trading value (32.5890 trillion won). On the 4th, trading reached a record high of 44.3606 trillion won in a single day. As of the 19th, the ETF market's total net assets stood at 381.3296 trillion won, approaching the 400 trillion won era.
Lee Hyo-seop, senior research fellow at the Capital Market Research Institute, said, "As many individual investors feel the fear of missing out (FOMO), the expansion of the ETF market will further amplify the influence of leveraged products," adding, "Investors should remember that leverage investing based on a 'compensation psychology' to make up prior losses with bigger returns can instead accelerate asset losses."
In fact, given the nature of high-risk products, few investors end up with gains. According to a survey released by the Korea Finance Consumer Federation on the 12th, 58.8% of the 2,500 adults surveyed earned gains from high-risk ETFs such as leverage and inverse products. That was more than 20 percentage points lower than the share of profitable investors in general ETFs (79.9%).
While forecasts call for continued growth of the ETF market, there are also warnings to watch volatility. Ha Jae-seok, a researcher at NH Investment & Securities, said, "Given the government's KOSDAQ activation policies, asset managers' active launches of KOSDAQ-related active ETFs, and leveraged investments in individual stocks, capital inflows into ETFs are likely to continue for the time being," adding, "Investors should also keep in mind the potential for heightened share price volatility among smaller-cap holdings within ETFs."