Foreign Investors Turn to Short Selling in June

Top Rankings in Net Purchases of Two Inverse ETFs

[Asia Economy Reporter Myung-hwan Lee] Since the beginning of this month, the investment sentiment of Seohak Gaemi (Korean individual investors investing in U.S. stocks) has been focused on index declines. Inverse leverage Exchange Traded Fund (ETF) products, which generate profits as the index falls, have newly appeared among the top net purchase items. During this period, major indices dropped significantly, and the prices of these products also rose sharply.

On the 16th, Asia Economy analyzed data from the Korea Securities Depository's securities information portal SEIBro and found that among the top 10 domestic overseas stocks by net purchase from the 1st to the 14th of this month, two were inverse leverage ETF products. This contrasts with last month, when six leverage ETFs and Exchange Traded Notes (ETNs) that closely track the index ranked among the top net purchases.

The ‘ProShares UltraPro Short QQQ (SQQQ)’, which inversely tracks the Nasdaq 100 index at three times leverage, ranked second in net purchases. During this period, domestic investors net purchased $62.14 million (approximately 79.48 billion KRW) worth of SQQQ. Following that, the ‘Direxion Daily Semiconductor Bear 3X Shares (SOXS)’, which inversely tracks the Philadelphia Semiconductor Index at three times leverage, ranked fourth. The ‘ProShares Ultra VIX Short Term Futures (UVXY)’, an ETF tracking the Volatility Index (VIX) that measures the volatility of index options, also ranked ninth. The VIX index moves inversely to stock indices and is also known as the fear index.

This appears to be due to growing inflation concerns, such as the U.S. Consumer Price Index (CPI) rising unexpectedly over the past month, leading global stock markets into a downturn. As a result, investment has concentrated on inverse products that profit as related indices fall. In fact, both inverse ETFs and VIX-tracking ETFs have risen significantly since June. SOXS increased by 38.96%, while SQQQ (31.61%) and UVXY (24.03%) also recorded gains exceeding 20%.

However, since inverse ETFs are highly volatile products, it is advised to use them for short-term profit-taking trades. Hyun-jong Jung, a researcher at Korea Investment & Securities, said, "Inverse ETFs have high volatility, and the more market noise there is, the greater the losses from rebalancing. It is more effective to use them as short-term directional trading tools rather than for long-term holding."

Additionally, corporate bond investment ETFs and U.S. Treasury bond investment ETFs newly appeared among the top net purchase items in June. It is estimated that amid the interest rate hike period, including the Federal Reserve's ‘Giant Step’ (a 0.75 percentage point rate hike at once), investment has concentrated on relatively stable bond products.

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