Leveraged Inverse ETFs Hit Lows as KOSPI Nears All-Time High

Leveraged Inverse ETFs That Double Down on Index Declines
Sweeping the Top 1 to 5 Spots in Last Week’s ETF Losses
Prices Drop to 52-Week Lows
KOSPI Recovers from War Shock... Further Declines Expected for Leveraged Inverse ETFs

As the KOSPI recovers from the shock of war and approaches its previous high, the share prices of leveraged inverse exchange-traded funds (ETFs), which are double-leveraged bets on a KOSPI decline, have fallen to their lowest levels of the year. Despite ongoing geopolitical uncertainty in the Middle East, expectations that the KOSPI will continue its upward trend, having built up resilience, have led to projections that returns on leveraged inverse ETFs will decline even further.

According to the Korea Exchange on April 21, leveraged inverse ETFs recorded the lowest returns among ETFs last week. KIWOOM 200 Futures Inverse 2X dropped by 13.90%, marking the steepest decline. TIGER 200 Futures Inverse 2X decreased by 12.07%, KODEX 200 Futures Inverse 2X by 11.87%, PLUS 200 Futures Inverse 2X by 11.67%, and RISE 200 Futures Inverse 2X by 11.66%. The top five ETFs with the largest declines were all leveraged inverse products. These funds deliver double the profit when the index falls, but conversely, result in double the loss when the index rises.

Last week, the KOSPI climbed by 5.68%, while the KOSPI 200 rose by 5.99%.

Although the geopolitical issue stemming from the Middle East intensified over the weekend as the Strait of Hormuz was once again blockaded, the stock market advanced the previous day, moving closer to its previous high. As a result, leveraged inverse ETFs successively hit new 52-week lows.

On this day, KIWOOM 200 Futures Inverse 2X recorded a 52-week low of 184 won during trading. KODEX 200 Futures Inverse 2X fell to 188 won, TIGER 200 Futures Inverse 2X to 198 won, PLUS 200 Futures Inverse 2X to 390 won, and RISE 200 Futures Inverse 2X to 191 won, with each ETF setting a new 52-week low.

As the KOSPI is expected to continue its upward trend, having almost fully recovered from the losses caused by the Iran war, further declines in these leveraged inverse ETFs appear inevitable.

Lee Sang-yeon, a researcher at Shin Young Securities, explained, "Heightened geopolitical risk is no longer a new variable in the market, but rather an event that has been repeatedly priced in. Global stock markets have already been rebounding since April, and the market is being reorganized around momentum and fundamentals. Even if volatility increases in the future, we expect the lower bound of the index to remain solid. The domestic market is likely to attempt to surpass its previous high, reflecting earnings momentum."

Lee Kyung-min, a researcher at Daishin Securities, noted, "The KOSPI is currently reflecting improvements in business conditions and earnings in major industries and sectors, which had previously been overshadowed by geopolitical risk. Following Samsung Electronics' earnings surprise, earnings forecasts for the semiconductor sector have been upgraded, and the KOSPI's forward price-to-earnings ratio (PER) is just 7.55 times—almost at the pandemic low of 7.52 times. Even just a normalization of valuations could sustain the march toward all-time highs."

As additional declines in leveraged inverse ETFs are anticipated, there are concerns that investor losses will expand further. According to ETFCheck, individual investors have made a net purchase of 140.3 billion won in KODEX 200 Futures Inverse 2X over the past month.

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