Solo Surge in a Plunging Market: 'Inverse'... Retail Investors Have Changed

[Asia Economy Reporter Oh Ju-yeon] Despite the global stock market crash causing most domestic stocks to remain in a downward trend, inverse exchange-traded funds (ETFs) were the only ones to surge sharply, recording double-digit returns. What draws attention is the movement of individual investors. Even amid the market crash, they have consistently continued net buying, but funds are increasingly flowing into 'inverse' ETFs that bet on index declines. This is interpreted as disappointment stemming from dashed hopes for an index rebound.

According to the Korea Exchange on the 23rd, since the beginning of this month, the price of KODEX Inverse rose from 6,855 won on the 2nd to 9,030 won as of 10 a.m. that day, marking a sharp increase of 31.73% in just over a month. TIGER Inverse also rose from 7,475 won to 9,915 won, up 32.64%. Inverse ETFs are designed to generate profits when the index falls. Representative products include KODEX Inverse managed by Samsung Asset Management and TIGER Inverse managed by Mirae Asset. They mainly use the KOSPI 200 futures index as the underlying index, and their structure yields a 1x return when the underlying index drops by 1%. Products that yield twice the return are called Inverse 2x, and their returns for March exceeded 80% at maximum.

For KODEX 200 Futures Inverse 2x, which has the highest trading volume, the price rose from 7,065 won on the 2nd to 11,970 won on the day, soaring by 69.43%. TIGER 200 Futures Inverse 2x also increased from 7,195 won to 12,180 won during the same period, up 69.28%. When the KOSPI plunged more than 8% on the 19th, the price even reached 13,060 won intraday, pushing returns up to 81.51%.

On the other hand, KODEX Leverage, which profits when the index rises, fell to 6,400 won on the day, down 47.12% from 12,100 won on the 2nd. This was due to the U.S. New York stock index futures dropping nearly 5%?the price limit?right after opening on the 22nd (local time), causing the KOSPI to plunge 6.88% intraday. On that day, sell-side circuit breakers were triggered simultaneously in both the KOSPI and KOSDAQ markets. It was the fourth sell-side circuit breaker this year in the KOSPI market and the third in the KOSDAQ market.

As the stock market continues to fall uncontrollably, individual investors' responses are gradually changing. Since the beginning of this month, they have continued net buying for 13 consecutive trading days in the KOSPI market, purchasing stocks worth 92.2 billion won, but the proportion of inverse ETFs in their shopping basket is increasing.

From the 2nd to the 20th of this month, individuals bought the most Samsung Electronics (4.0117 trillion won), followed by KODEX Leverage (1.642 trillion won). However, they have not consistently held leverage products. From the 9th to the 13th, the second week of March, they sold 225 billion won worth of KODEX 200 Futures Inverse 2x, but from the 16th to the 20th, the third week of March, they bought 215.3 billion won worth. Especially, the buying trend over the last three trading days shows a clear change. On the 19th, during the crash, they bought 198.9 billion won worth of KODEX Leverage, ranking first in net buying, but on the 20th, during the rebound, they sold it off and instead purchased 215 billion won worth of KODEX 200 Futures Inverse 2x, making it the top net bought stock, surpassing Samsung Electronics.

Some investors believe that the KOSPI could fall below the 1,400 level and argue that only inverse products should be entered. For example, investors who bought KODEX 200 Futures Inverse 2x at the closing price on the 20th earned more than 10% returns in just one day.

However, since inverse and leverage ETFs can incur significant losses in a sideways market, blind approaches should be avoided. The securities industry expects that the KOSPI may experience high volatility early this week but will gradually stabilize.

Seosangyoung, a researcher at Kiwoom Securities, said, "Considering that the fear of the novel coronavirus (COVID-19) is easing in China, factory operating rates are increasing, and international oil prices are also expected to rebound due to possible production cuts mentioned in the U.S., the decline is expected to be limited." He forecasted that the KOSPI would fluctuate between 1,500 and 1,600 points, and the KOSDAQ between 440 and 500 points. Hana Financial Investment also predicted that the KOSPI would show a neutral to positive price trend this week, seeking to stabilize around the 1,500 level."

This content was produced with the assistance of AI translation services.