KOSPI Rally Leaves Leveraged Inverse ETF Investors 'Groaning'

Published 16 Nov.2020 11:25(KST)

[Image source=Yonhap News]

[Asia Economy Reporter Koo Eun-mo] Recently, as the KOSPI has been on a rising rally, the prices of so-called 'Gopbus' exchange-traded funds (ETFs), which track twice the inverse of the daily fluctuation rate of the KOSPI200 futures index, have all hit their lowest levels. As the prices of inverse stocks continue to fall day after day, the concerns of individual investors who have purchased large amounts of these stocks are also growing.

According to the Korea Exchange on the 16th, on the 13th, the price of KODEX 200 Futures Inverse 2X closed at 3,595 won, down 2.04% (75 won) from the previous trading day. This is the lowest price since its listing on September 22, 2016, based on the closing price. Recently, as the KOSPI has been hitting new highs day after day and showing an upward trend, KODEX 200 Futures Inverse 2X has fallen 18.5% just this month. On that day, the KOSPI surpassed the 2,500 mark during trading, moving closer to the all-time high of 2,607.10 points recorded on January 29, 2018.

Other Gopbus stocks also fell, all hitting new lows. Over the past 10 trading days this month, TIGER 200 Futures Inverse 2X (-18.4%), KBSTAR 200 Futures Inverse 2X (-18.3%), and KOSEF 200 Futures Inverse 2X (-18.3%) have all dropped nearly 20%, and non-Gopbus general inverse stocks also fell significantly. KOSEF 200 Futures Inverse (-9.9%) fell close to 10%, and KBSTAR 200 Futures Inverse (-9.8%), TIGER Inverse (-9.5%), and KINDEX Inverse (-9.3%) also declined.

Recently, global stock markets have risen due to relief from the removal of uncertainty surrounding the U.S. presidential election and increased expectations for strong economic stimulus measures following the election of Democratic candidate Joe Biden. Additionally, the announcement of interim results showing that the COVID-19 vaccine being developed by U.S. pharmaceutical company Pfizer and German BioNTech is over 90% effective led to further gains in global stock markets and improved investment sentiment in emerging markets, which in turn contributed to the rise in the domestic stock market.

As investment sentiment toward risky assets improved, foreign and institutional investors dumped shares of inverse ETFs that bet on a KOSPI decline, while individual investors absorbed these shares. It is interpreted that individual investors anticipated a correction and started buying as the KOSPI continues its rally toward an all-time high. The stock most purchased by individuals in the KOSPI market this month was KODEX 200 Futures Inverse 2X, with net purchases amounting to 574.5 billion won. KODEX Inverse and TIGER 200 Futures Inverse 2X were also net purchased at 99.3 billion won and 15.8 billion won, respectively.

With domestic COVID-19 cases showing signs of increasing again recently, whether the KOSPI can sustain its rally ultimately depends on vaccine development. This is because vaccine development will offset concerns related to COVID-19 and raise expectations for the normalization of economic activities.

Park Ok-hee, a researcher at IBK Investment & Securities, said, "The stock market will begin to fully reflect vaccine development when an emergency use application is submitted to the U.S. Food and Drug Administration (FDA)." She added, "Considering the current progress of major pharmaceutical companies, this timing is expected to be around early to mid-December at the earliest, and if government approval proceeds as expected, it will drive a year-end rally."