2x ETF Put to the Test After a Month and a Half: The Policy Is a Hit, but Investors Are Taking Losses [Why Stocks Move]

[Financial News] The government’s single-stock leveraged ETF, introduced in the name of revitalizing the capital market, has come under scrutiny just a month and a half after launch. Trading volume has surged, but investor losses have widened, while the existing ETF market has seen capital outflows. The government has now begun a belated review of the policy’s effectiveness.■ A failing gradeAccording to the Korea Exchange on the 11th, all four of the most actively traded single-stock leveraged ETFs tied to Samsung Electronics and SK hynix were trading below their closing prices on the listing date as of the 10th, after debuting on May 27. TIGER Samsung Electronics Leveraged ETF fell 25.8%, while KODEX Samsung Electronics Leveraged ETF dropped 25.5%. TIGER SK hynix Leveraged ETF declined 22.1%, and KODEX SK hynix Leveraged ETF fell 21.7%.
Even after slipping below their listing prices, trading remained brisk. Average trading volume in July rose from June for three of the four products, excluding TIGER Samsung Electronics Leveraged ETF. KODEX Samsung Electronics Leveraged ETF increased 2.4%, TIGER SK hynix Leveraged ETF rose 40.9%, and KODEX SK hynix Leveraged ETF climbed 62.7%. The gains suggest that investors continued to buy on dips and trade for short-term rebounds despite the price declines.
Some analysts say the shift of short-term funds into leveraged ETFs has weakened the buying base for existing ETFs. The average daily net buying by individual investors in all ETFs excluding single-stock ETFs plunged from 551.9 billion won between April 24 and May 26, before the launch, to 116.4 billion won in the first week after launch, from May 27 to June 2. Domestic semiconductor ETFs also swung from average daily net buying of 171.7 billion won to net selling of 286.6 billion won over the same period.■ The underlying assets could not hold upFrom May 27, when the leveraged ETFs were introduced, to the 10th, only three of the top 10 KOSPI stocks by market capitalization posted gains: KB Financial Group, SK Square, and Samsung Biologics. Samsung Electronics fell 7.2% from 307,000 won to 285,000 won, while SK hynix dropped 2.8% from 2,243,000 won to 2,180,000 won. Hyundai Motor Company declined 32.8% from 681,000 won to 457,500 won, and LG Energy Solution fell 15.0% from 383,500 won to 326,000 won.
Volatility in the KOSDAQ market was even greater. Most of the top market-capitalization stocks fell, except for PSK Inc. and WONIK IPS Co., Ltd. EcoPro BM dropped 43.0%, EcoPro 40.0%, Rainbow Robotics 38.0%, LEENO Industrial Inc. 28.0%, Kolon TissueGene 18.6%, and Alteogen Inc. 16.2%.
A securities industry official said, "A single-stock leveraged ETF is a product that amplifies the upside of the underlying asset; it is not a product that pushes stock prices higher." The official added, "Since both Samsung Electronics and SK hynix are trading below their listing prices, it can be said that investment performance has fallen short of expectations."■ Reconsideration after a month and a halfAt a Cheong Wa Dae briefing on the 10th, Kim Yong-beom, chief policy secretary at the Office of the President of the Republic of Korea, addressed concerns that the Samsung Electronics and SK hynix single-stock leveraged ETFs could increase volatility. "Because this is a newly introduced system, we plan to closely examine its impact on the market through the F4 meeting over the course of about a month and a half of operation," he said. He added, "If any necessary improvements are found, I think we will review them, discuss them, and make a decision."
Critics say the government is responding only after investor losses have become real, even though concerns about capital concentration and volatility were raised soon after launch.
Concerns over single-stock leveraged ETFs are not new. Lee Chan-jin, governor of the Financial Supervisory Service, publicly expressed regret over the process of introducing the system at a meeting last month, saying, "I keep regretting whether we should have stopped it somehow, even if we had to lie down and block it at the time."
The Korea Capital Market Institute also analyzed that "the structural characteristics of single-stock leveraged ETFs could increase market volatility through rebalancing trades." It added that "as assets under management (AUM) grow, rebalancing trades will also increase, so the market impact could become even greater in periods of rising volatility, making continuous monitoring necessary."

dschoi@fnnews.com Choi Du-seon Reporter