As the share prices of Samsung Electronics and SK hynix, the twin pillars of Korea's stock market in semiconductors, have been undergoing daily corrections, the woes of individual investors who bet on "single-stock leveraged ETFs," which track twice the rate of share-price gains, are deepening.
In just the past two weeks, unrealized gains that had exceeded 4.5 trillion won swiftly flipped to unrealized losses. In particular, as the decline steepened over the past two days, investors' principal has been melting away at a rapid pace.
According to FnGuide Quantwise on the 9th, the combined assets under management (AUM) of the Samsung Electronics and SK hynix single-stock leveraged ETFs managed by Samsung Asset Management and Mirae Asset Global Investments totaled 12.3064 trillion won as of the 7th of this month. After peaking at 15.4102 trillion won on the 25th of last month, 3.1038 trillion won evaporated in just 12 days.
An analysis of the unrealized profit and loss of these products shows that gains that continued through last month have all turned negative. Riding the artificial intelligence (AI) rally, the cumulative unrealized gains of the SK hynix leveraged ETF reached 3.9088 trillion won as of June 22. The Samsung Electronics leveraged ETF also recorded 1.1185 trillion won in unrealized gains as of the 18th of last month. Based on last month's peak for the two leveraged products (combined as of June 25), total gains amounted to 4.5841 trillion won.
However, as concerns about a semiconductor peak and a wave of selling hit, the mood reversed sharply. As of the 7th of this month, unrealized losses of 1.5415 trillion won occurred in the SK hynix leveraged ETF and 1.1458 trillion won in the Samsung Electronics leveraged ETF. The unrealized gains that had exceeded 4.5 trillion won two weeks earlier were wiped out entirely, and instead a total unrealized loss of 2.6873 trillion won piled up. Notably, as of the 6th of this month the combined loss was around 1.039 trillion won, but in a single day on the 7th, the loss ballooned by 1.6483 trillion won.
Even as returns plunged, inflows of retail investors' funds instead surged explosively. The cumulative net inflows into the SK hynix leveraged ETF jumped 58.8%, from 5.7431 trillion won at last month's peak (June 22) to 9.1176 trillion won as of the 7th of this month. The Samsung Electronics leveraged ETF likewise saw net inflows rise 43.8%, from 4.0851 trillion won on June 18 to 5.8762 trillion won as of the 7th of this month.
Each time share prices corrected, individual investors who judged that the market had bottomed appear to have embarked on large additional purchases of leveraged products—so-called "averaging down." But as the downtrend failed to stop, it only widened their losses. Despite trillions of won in new funds continuing to pour in, the overall AUM shrank, which suggests that principal losses from the stock plunge overwhelmed the scale of newly added funds.
A person in the asset management industry said, "Because of the nature of single-stock leveraged products, if the share-price decline does not stop and unrealized losses grow to an unmanageable level, a point inevitably comes when new money inflows are cut off," and added, "Given that net inflows have steadily increased despite index declines, it can be seen that individual investors are concentrating on high-risk averaging down aimed at buying the bottom."
In the securities industry, there is analysis that the shift to losses in these semiconductor leveraged ETFs could be more than a temporary correction and may signal a turning point for the market landscape. The moment when individuals' averaging-down funds—which had steadily flowed in even during a downturn—come to a halt could be the most dangerous tipping point, they note.
Kim Seok-hwan, a researcher at Mirae Asset Securities, said, "Given the characteristics of leveraged products, if the downtrend in share prices does not stop and unrealized losses become unbearable, there will inevitably come a time when new money inflows are suspended," and warned, "If the funds of individual investors, who have been holding on believing they are buying the bottom, are cut off and fear of principal loss peaks, the market could swiftly shift into a 'panic selling (dumping)' phase as supply floods in."