Investors poured more than US$10 billion into South Korean leveraged equity funds in the first week of August, suggesting local retail investors may be ramping up bets that an aggressive chip stock selloff marks a correction rather than the end of the rally.
Samsung Asset Management's KODEX Leverage Derivatives ETF drew US$4.3 billion through August 7, the largest inflow among 829 alternative equity leveraged funds tracked by LSEG. Two leveraged SK Hynix products attracted a combined US$3.45 billion, while the two biggest Samsung Electronics leveraged funds took in nearly US$2 billion.
The scale of the inflows stands out against a backdrop of tighter regulation to curb speculation in products tied to South Korea's two juggernaut memory makers, and a sharp reversal since mid-June in the country's world-beating chip share rally.
South Korean authorities tripled the minimum cash requirement for investors in single-stock leveraged ETFs to 30 million won from July 31 as part of measures to curtail stock market volatility, as the benchmark KOSPI.KS11sagged to its largest monthly loss since the depths of the 2008 global financial crisis and retail investors rushed into US stocks.
Regulators also froze new listings and restricted promotion of the products after a surge in speculative trading.
Trading volumes fell sharply after the measures took effect. By August 3, daily turnover in the KODEX SK Hynix leveraged ETF had fallen to 560 billion won from 1.3 trillion won on July 31, while turnover in the KODEX Samsung Electronics ETF dropped to 234 billion won from 1.4 trillion won on July 30.
The August flow data nevertheless shows demand for leveraged exposure has persisted.
Seven of the 10 funds attracting the most money were tied directly to South Korean equities, semiconductors or the country's largest chipmakers. The KODEX SK Hynix Single Stock Leverage ETF drew US$2.21 billion, while Mirae Asset's comparable product attracted US$1.23 billion. KODEX Samsung Electronics Leverage received US$1.28 billion and Mirae's Samsung fund took in US$695 million.
The identities of the buyers are not available in LSEG's flow data, but the earlier boom in South Korean single-stock leveraged ETFs was dominated by retail investors, who held about 92 percent of exposure to Samsung- and Hynix-linked leveraged ETFs, according to Financial Supervisory Service data.
Leveraged ETFs have become popular as retail investors seek bigger returns from Samsung Electronics and SK Hynix. The funds aim to deliver a multiple of a stock or index's daily gains as well as its losses, typically two times in South Korea. Daily resetting can also erode returns in volatile markets.
Reuters
