Retail Investors Uneasy as Inverse ETFs Bought Amid Second Battery Stock Rebound

LG Energy Solution's Strong Earnings Boost Secondary Battery Stocks
Domestic First Secondary Battery Inverse ETF Returns Fall to Single Digits

After more than two months of adjustment and a sluggish trend, secondary battery stocks are showing a rebound for the first time in a while. However, investors in the secondary battery inverse exchange-traded fund (ETF) are not pleased with this rebound in secondary battery stocks. This is because the ETF's returns decline as secondary battery stocks rebound.

According to the Korea Exchange on the 13th, the KBSTAR 2cha Jeonji TOP10 Inverse (Synthetic) closed at 22,000 won, down 3.32% from the previous day. It showed a relatively large decline for two consecutive days. In contrast, secondary battery stocks continued their upward trend for the second day. Ecopro BM, which surged more than 9% the previous trading day, rose more than 4% on this day as well, pushing its stock price from the 220,000 won range back up to the 250,000 won range. Ecopro, which had fallen below 800,000 won on the 10th, also rose for two consecutive days, recovering to the 870,000 won level. Most other secondary battery stocks also showed a rebound for two consecutive days. Seokhwan Kim, a researcher at Mirae Asset Securities, explained, "The confirmation of the benefits from the Inflation Reduction Act (IRA) subsidies as a factor behind LG Energy Solution's strong performance has increased expectations across the entire secondary battery value chain."

With the rebound of secondary battery stocks, individual investors who purchased the KBSTAR 2cha Jeonji TOP10 Inverse (Synthetic) ETF are facing a dilemma. If the rebound continues, the returns are bound to keep falling. The KBSTAR 2cha Jeonji TOP10 Inverse (Synthetic) ETF is structured to move inversely to the returns of the 'iSelect 2cha Jeonji TOP10' index, which indexes the prices of the top market capitalization secondary battery stocks.

Launched on the 12th of last month, the KBSTAR 2cha Jeonji TOP10 Inverse (Synthetic) was the first domestic secondary battery inverse ETF and attracted market attention even before its listing. Especially as it coincided with the adjustment of secondary battery stocks, active buying by individuals flowed in immediately upon listing. The KBSTAR 2cha Jeonji TOP10 Inverse ETF saw net purchases of 44.2 billion won by individuals within one month of listing. The ETF also showed favorable returns amid the weak stock prices of secondary battery stocks. It rose 7.40% over the month until the day before yesterday, recording the third-highest return among all ETFs. Until the 10th, its return was 17.82%, ranking first among all ETFs, but from the 11th, as secondary battery stocks rebounded sharply, the return dropped to single digits.

As the rebound of secondary battery stocks brings mixed feelings, market attention is focused on whether the rebound will continue. Although valuation attractiveness has increased due to the recent adjustment, the lack of order momentum is a burden on stock prices. Ianna, a researcher at Yuanta Securities, analyzed, "As the secondary battery stock price adjustment continued, the EV/EBITDA multiples based on 2025 enterprise value for high-valuation stocks such as POSCO Future M and Ecopro BM fell to 25 times and 18 times, respectively." She added, "Considering that the domestic cathode material companies' compound annual growth rate from 2023 to 2025 is over 45%, the valuation attractiveness has increased." She further noted, "However, the third quarter is a period of order blank, and adjustments will continue until October. The mid to late October period is the time to increase weight."

Since LG Energy Solution's strong performance led the rebound of secondary battery stocks, the third-quarter earnings announcements of secondary battery stocks to be released in the future are also expected to influence whether the rebound continues. LG Energy Solution recorded its highest-ever quarterly operating profit in the third quarter this year. Third-quarter sales were 8.2235 trillion won, and operating profit was 731.2 billion won, up 7.5% and 40.1%, respectively, compared to the same period last year. Yongwook Lee, a researcher at Hanwha Investment & Securities, said, "One of the biggest reasons for the current price adjustment in the secondary battery sector is concerns about weak electric vehicle demand." He predicted, "If the front-end electric vehicle demand remains stronger than expected, large-scale cathode material orders are announced one after another by the end of the year, and lithium prices also rebound, an industry turnaround will be possible."

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