The scale of the inflows stands out against a backdrop of tighter regulation to curb speculation in products tied to South Korea's two juggernaut memory makers, and a sharp reversal since mid-June in the country's world-beating chip share rally.
South Korean authorities tripled the minimum cash requirement for investors in single-stock leveraged ETFs to 30 million won from July 31 as part of measures to curtail stock market volatility, as the benchmark KOSPI sagged to its largest monthly loss since the depths of the 2008 global financial crisis and retail investors rushed into U.S. stocks.
Regulators also froze new listings and restricted promotion of the products after a surge in speculative trading.
Trading volumes fell sharply after the measures took effect. By August 3, daily turnover in the KODEX SK Hynix leveraged ETF had fallen to 560 billion won from 1.3 trillion won on July 31, while turnover in the KODEX Samsung Electronics ETF dropped to 234 billion won from 1.4 trillion won on July 30.
The August flow data nevertheless shows demand for leveraged exposure has persisted.
Seven of the 10 funds attracting the most money were tied directly to South Korean equities, semiconductors or the country's largest chipmakers. The KODEX SK Hynix Single Stock Leverage ETF drew $2.21 billion, while Mirae Asset's comparable product attracted $1.23 billion. KODEX Samsung Electronics Leverage received $1.28 billion and Mirae's Samsung fund took in $695 million.
The identities of the buyers are not available in LSEG's flow data, but the earlier boom in South Korean single-stock leveraged ETFs was dominated by retail investors, who held about 92% of exposure to Samsung- and Hynix-linked leveraged ETFs, according to Financial Supervisory Service data.
Leveraged ETFs have become popular as retail investors seek bigger returns from Samsung Electronics and SK Hynix. The funds aim to deliver a multiple of a stock or index's daily gains as well as its losses, typically two times in South Korea. Daily resetting can also erode returns in volatile markets.
SMH•
