“Hynix down 28%, Samsung Electronics down 20%” ... Retail investors flock to leveraged ETFs

[Financial News] The KOSPI has fallen nearly 19% so far this month, but individual investors have increased their purchases of single-stock leveraged exchange-traded funds (ETFs) tied to Samsung Electronics and SK Hynix. While individual investors, who had been net sellers for two consecutive months after regulations were tightened at the end of July, turned net buyers this month, foreign investors sharply reduced their holdings of related products.
According to the Korea Exchange and KOSCOM CHECK on the 26th, individual investors were net buyers of 14 single-stock leveraged ETFs tied to Samsung Electronics and SK Hynix, purchasing 315.4 billion won more than they sold from the 1st to the 23rd of this month. After net buying 2.7728 trillion won in July, they were net sellers of 648.4 billion won in August and 497.9 billion won in September, respectively, but buying once again exceeded selling this month.
The seven products tied to SK Hynix saw net purchases of 226.3 billion won, more than the 89.1 billion won for the seven products tied to Samsung Electronics. Among individual ETFs, KODEX SK Hynix Single Stock Leverage ranked 11th among all ETFs listed in South Korea, with individual investors’ net purchases totaling 152.9 billion won. They also bought a net 62.1 billion won of TIGER SK Hynix Single Stock Leverage.
From the 1st to the 23rd of this month, Samsung Electronics shares fell 20.04% and SK Hynix shares fell 28.38%. With SK Hynix posting the steeper decline, individual investors’ net purchases of related leveraged ETFs also exceeded those of Samsung Electronics ETFs. This is interpreted as reflecting relatively stronger buying by investors expecting a rebound in SK Hynix after its share price fell sharply.
Individual investors also bought products that amplify and track the returns of indexes and sectors, not just individual stocks. This month, net purchases of KODEX Leverage totaled 1.0448 trillion won, while those of Samsung KODEX Semiconductor Leverage ETF totaled 256.4 billion won. Investors are seen as making bargain purchases as the KOSPI plunged 18.83% over the same period in anticipation of a rebound in the index and semiconductor shares.
Foreign investors, by contrast, sold single-stock leveraged ETFs tied to Samsung Electronics and SK Hynix. From the 1st to the 23rd of this month, their net sales across the 14 products totaled 48.8 billion won.
The number of shares they held also fell sharply. An analysis of eight related ETFs from KODEX, TIGER, ACE and RISE found that foreign investors’ holdings in the four products tied to Samsung Electronics fell 90.8%, from 28.41 million shares on July 10 to 2.62 million shares on the 23rd of this month. Foreign holdings in the four products tied to SK Hynix also fell 67.1% from their July peak. Unlike individual investors, who had resumed buying, foreign investors reduced their holdings of related products.
Securities industry experts warn investors to exercise caution when investing in leveraged ETFs amid high share-price volatility. Products that track an underlying asset’s daily return at twice the rate can still leave investors with losses even if the underlying asset’s price returns to its original level after repeatedly rising and falling. This is known as the “negative compounding effect.” They say that increasing purchases in anticipation of a short-term rebound in share prices could instead lead to greater losses.


[email protected] Han Seung-gon Reporter