Individual Investors Net Buy 140.3 Billion Won in a Month... KOSPI Surges While Double Inverse ETFs Hit Rock Bottom

As the KOSPI recovers from the shock of war and nears its previous high, the prices of ‘double-leveraged inverse’ exchange-traded funds (ETFs) that bet twice as much on a KOSPI decline have fallen to their lowest levels this year. Despite ongoing geopolitical uncertainty in the Middle East, the KOSPI has developed a degree of resilience, and is expected to continue its upward trend, which in turn is projected to further erode the returns of leveraged inverse ETFs.

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According to the Korea Exchange on April 21, double-leveraged inverse ETFs ranked at the bottom in ETF performance last week. KIWOOM 200 Futures Inverse 2X dropped by 13.90%, recording the largest decline, followed by TIGER 200 Futures Inverse 2X at -12.07%, KODEX 200 Futures Inverse 2X at -11.87%, PLUS 200 Futures Inverse 2X at -11.67%, and RISE 200 Futures Inverse 2X at -11.66%. The top five ETFs with the steepest losses were all double-leveraged inverse products. These products offer double the profit if the index falls, but conversely, double the loss when the index rises.

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

Over the weekend, the Strait of Hormuz was blocked again, intensifying geopolitical issues originating from the Middle East. Nevertheless, the previous day’s stock market continued to rally, moving another step 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 hit a 52-week low of 184 won during trading, KODEX 200 Futures Inverse 2X fell to 188 won, TIGER 200 Futures Inverse 2X dropped to 198 won, PLUS 200 Futures Inverse 2X declined to 390 won, and RISE 200 Futures Inverse 2X reached 191 won, with each setting a new 52-week low.

With the KOSPI having nearly recovered from the losses caused by the Iran war and its upward momentum expected to continue, further declines in these double-leveraged inverse ETFs appear inevitable.

Lee Sang-yeon, a researcher at Shin Young Securities, stated, “In the current market, heightened geopolitical risk no longer qualifies as a new variable; it is seen more as a ‘repeatedly priced-in event.’ Global stock markets have already rebounded since April, and the focus has shifted toward momentum and fundamentals, which suggests that even if volatility increases in the future, the downside for the indices should remain solid. The domestic stock market is likely to attempt to break through previous highs as it reflects strong earnings momentum.”

Lee Kyung-min, a researcher at Daishin Securities, commented, “The KOSPI is now reflecting improvements in major industries and sectors that were previously overshadowed by geopolitical risks. Following Samsung Electronics’ earnings surprise, expectations for the semiconductor sector’s results have been raised. The KOSPI’s forward price-to-earnings ratio (PER) is only 7.55 times, which is near the pandemic low of 7.52 times. Even a normalization in valuation could lead to a continued rally toward all-time highs.”

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With further declines in leveraged inverse ETFs anticipated, there are concerns that investor losses will increase. According to ETFCheck, individual investors made net purchases of KODEX 200 Futures Inverse 2X totaling 140.3 billion won over the past month.

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