Kospi Stability in Focus as Single-Stock Leveraged ETF Turnover Falls Below 1 Trillion Won for First Time

Single-stock leveraged ETF trading slumps

Funds spread into the Kosdaq

Trading in single-stock leveraged exchange-traded funds fell below 1 trillion won for the first time since the products debuted, signaling a sharp pullback in retail activity after regulators tightened rules. The slowdown suggests demand once concentrated in leveraged products linked to Samsung Electronics Co. and SK Hynix Inc. may be shifting to other sectors and strategies, including small- and mid-cap growth stocks on the Kosdaq.

According to the Korea Exchange, total turnover in 16 leveraged and inverse ETFs tied to Samsung Electronics and SK Hynix stood at 919.8 billion won as of Aug. 4. It was the first time trading in those products had dropped below 1 trillion won since their May 27 listing. Trading has cooled since tougher rules took effect on July 31, including an increase in the minimum deposit requirement to 30 million won from 10 million won.

Turnover in the 16 single-stock leveraged products plunged to 3.1518 trillion won on July 31, the first day of the new rules, from 12.4485 trillion won on July 30. It then fell to 1.3872 trillion won on Aug. 3 and 1.2556 trillion won on Aug. 4.

Their share of total ETF turnover stood at 5.7% on Aug. 4, up slightly from 5.4% on Aug. 3 and 4.5% on Aug. 4. The increase appears to reflect a drop in overall ETF trading. Total ETF turnover came to 15.9 trillion won on Aug. 4, down from 17.8409 trillion won on Aug. 3 and 19.1204 trillion won on Aug. 4.

Another measure of trading activity, turnover as a share of market capitalization, fell back to 11.4%. That ratio had surged to 219.1% on July 30, then dropped to 15.7% on Aug. 4 before declining again. In other words, the amount of money changing hands in a day has shrunk sharply relative to the products' overall size.

Retail investors were net sellers in most of the products. The only exception was SOL SK Hynix Futures Single Stock Inverse 2X, in which they were net buyers of 6.8 billion won. In KODEX SK Hynix Single Stock Leverage, the ETF with the largest net assets, they sold 56.7 billion won, the second-largest net sale among all ETFs. They also sold 23.2 billion won of KODEX Samsung Electronics Single Stock Leverage and 6.2 billion won of TIGER Samsung Electronics Single Stock Leverage.

Kim Jae-seung, an analyst at Hyundai Motor Securities, said retail interest in single-stock leveraged products has fallen rapidly since the regulatory changes. Since stricter investment requirements took effect on July 31, funds previously concentrated in the two largest companies by market capitalization have gradually moved into other sectors and strategies.

The market is also watching where that money goes next. As of Aug. 4, turnover in single-stock leveraged products accounted for 4.8% of total Kospi trading, down from 5.4% a day earlier. The average share in July was 33%.

The Kosdaq has shown the earliest response. Through Aug. 4, buy-side sidecars were triggered for three straight sessions as the market staged a strong rebound. Lee Jae-won, an analyst at Yuanta Securities, said the expected spillover into small- and mid-cap growth stocks from easing concentration in large semiconductor names became a reality just two trading days after the rules took effect.

Han Ji-young, an analyst at Kiwoom Securities, said declining single-stock leveraged trading also appears to have dispersed flows into the more volatile Kosdaq relative to the Kospi. In a semiconductor-led market, investors may have kept a 9-to-1 weighting between the Kospi and Kosdaq, he said. Now may be the time to consider adjusting that split to 8-to-2 or 7-to-3.

Morgan Stanley has also said the leverage unwind is nearing its final stage. On Aug. 2, the bank raised its recommendation on the Kospi to overweight from neutral, saying liquidations in leveraged ETFs, hedge funds and retail margin trading have largely passed the halfway point. That leaves room for corporate earnings and improving conditions in AI semiconductors to lead the market again.

Kang Kyung-ju, Hankyung.com reporter qurasoha@hankyung.com