"Ask and Double Down!"... Betting '2x' Inverse as KOSPI Falls to 1850 Level

[Asia Economy Reporter Oh Ju-yeon] The KOSPI, which had plummeted more than 35% due to the novel coronavirus infection (COVID-19), rebounded sharply by nearly 24% in less than a month, soaring to the 1860 level. Given the steep drop, this rebound has also proceeded rapidly, causing investors to remain skeptical about further declines despite the index's recovery. Especially since the number of confirmed COVID-19 cases worldwide continues to rise and the first-quarter corporate earnings to be announced this month are expected to reflect the impact of the coronavirus shock, uncertainty remains high. Accordingly, individual investors believe the index has risen enough and are betting on declines in the rising market.

According to the Korea Exchange on the 11th, from the 1st to the 10th of this month, the KOSPI rose more than 10%, from the 1680 range to the 1860 level. Compared to the 'V-shaped' rebound from the 1400 level on the 19th of last month to the 1760 level by the 31st, the rise has been more gradual but steady.

However, individual investors' investments have shown the opposite trend, drawing attention. During this period, individuals purchased the KODEX 200 Futures Inverse 2X Exchange-Traded Fund (ETF) the most, alongside Samsung Electronics. Additionally, KODEX Inverse ranked sixth among net purchases, indicating that funds were poured into bets on a subsequent index decline.

Inverse ETFs are products that generate profits when the index falls, with products offering 1x returns and '2X' products offering double returns. Among these, individuals invested six times more in the 2X products, which yield double returns linked to index declines, than in the 1x return products.

As of the closing price on the 9th, the net purchase amount of the KODEX 200 Futures Inverse 2X ETF reached 513.4 billion KRW, exceeding four times that of Samsung Electronics (126.1 billion KRW), the second-largest net purchase stock.

Notably, for the similarly index-decline-betting product KODEX Inverse, individuals invested 88.1 billion KRW, showing a significant difference compared to the amount invested in the so-called 'Gopbus' KODEX 200 Futures Inverse 2X, which yields double returns. This reflects the psychology of investors preferring to invest where they can earn more profits if returns are in the same direction.

However, investors who accumulated these products this month have yet to realize profits.

This is because the KODEX 200 Futures Inverse 2X fell 16.6%, from a closing price of 8,830 KRW on the 1st to 7,365 KRW on the 9th. KODEX Inverse also dropped 8.6%, from 7,855 KRW to 7,180 KRW during the same period.

Future market outlooks are mixed. While some expect the index to break through the 1800 level, others analyze that the 1850 level represents a short-term overheated zone, increasing the possibility of profit-taking, drawing attention to whether individuals invested in inverse ETFs can enter profitable territory.

Kim Yong-gu, a researcher at Hana Financial Investment, said, "The KOSPI has successfully entered the long-term box range of 1800 to 2050," adding, "The market's focus is expected to be on the process of finding its footing after breaking through the long-term box hurdle." He forecasted that attention will shift to first-quarter earnings variables in domestic and international markets, expecting a downward trend due to COVID-19 but that the market will generally remain neutral unless there is a shock severe enough to threaten corporate survival.

Kim explained, "The current KOSPI level already reflects a significant portion of the possibility of barely reaching 100 trillion KRW in operating profit in 2020, and even assuming Hana Financial Investment's worst-case scenario by sector (a potential additional 24% downward adjustment from existing operating profit estimates), the actual earnings downturn is expected to be curbed at least at that level or better."

On the other hand, Lee Kyung-min, a researcher at Daishin Securities, mentioned, "The KOSPI approaching the 1840-1850 level, which is about a 50% retracement of the recent short-term drop, suggests short-term overheating and increases the possibility of profit-taking."

He also noted that liquidity was the biggest force in normalizing global financial markets after the recent crisis phase, and that after the liquidity-driven market phase, an earnings-driven market phase will unfold.

Lee said, "In the short term, negative issues regarding economic indicators and corporate earnings results are inevitable, and the possibility of increased short-term volatility should be kept open."

Kim Byung-yeon, a researcher at NH Investment & Securities, forecasted, "If a correction occurs, the early 1700 level, which is a 33% retracement point of the decline, will act as a support level," adding, "Following Samsung Electronics' earnings guidance announcement, there is an impact from downward revisions to second-quarter and annual estimates, so for the time being, a stock market sensitive to daily fluctuations depending on the increase or decrease of COVID-19 cases in the US and Europe is expected."

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