It was confirmed that the surge in nuclear power–related stocks just before the market closed on the 12th was driven by the ripple effects of rebalancing (regular asset readjustment) in a nuclear power exchange-traded fund (ETF) managed by Korea Investment Management.
Typically, asset managers execute buy orders mechanically at the closing price during the call auction at the market close to minimize tracking error versus the underlying index. The problem is that for stocks with low trading volume and limited liquidity, when such large sums of money flow in at once, price gaps in the order book can cause distortions in which share prices spike abnormally.
On the 15th, the share prices of BHI, KEPCO E&C, Woori Technology, KEPCO KPS, and Hyundai Engineering & Construction were down about 6% to 15% from the previous trading day. These stocks had hit the daily upper limit (the top of the daily price increase cap) during the closing call auction on the 12th, and the morning's declines are seen as a process of prices returning to normal levels.
The direct cause of the incident was a supply-demand distortion from ETF rebalancing. Korea Investment Management on the 12th adjusted the regular component weights of its "ACE Nuclear Power TOP10" ETF. To reduce index-tracking error, the manager placed large buy orders for nuclear power–related stocks timed to the market's closing call auction, and the day's purchases are estimated at about 1.4 billion won.
The issue was that a surge of large buy orders came in at once while there was not much selling available in those stocks that day. As mechanical buying poured in, share prices shot up in an instant, and the ETF's premium/discount ratio (the gap between the ETF's actual value and market price) widened to -4.17%. Unlike Korea Investment Management, two other asset management firms that rebalanced nuclear power ETFs on the same day reportedly chose intraday split trading to minimize market impact.
The industry views this case as similar to when Samsung Asset Management conducted ETF rebalancing last year and Samsung Fire & Marine Insurance's share price swung sharply. Last year as well, during ETF rebalancing, adding new components coincided with futures and options expiration and other external factors, sending share prices surging.
Capital market experts say that as individual investors' funds have poured in and Korea's ETF market has grown rapidly to near 500 trillion won, there is growing concern that mechanical trading by passive funds is amplifying volatility in individual stocks.
Meanwhile, Korea Investment Management said there was no damage to investors who bought the ETF. A Korea Investment Management official said, "For investors in the ETF, on the next trading day, which is today, the ETF's premium/discount converges to 0, so there is no impact on investors." As of today, the ACE Nuclear Power TOP10 ETF's premium/discount stood at -0.09%, regaining stability.
A person in the securities industry said, "Since the stocks suddenly spiked, investors who 'chased the upper limit' could face losses," adding, "However, that falls within the realm of individual investment decisions."