Korean retail investors are leveraging to absorb foreign capital outflows, with most new positions falling into floating losses

Since the launch of the Korean single-stock leveraged ETF on May 27, individual investors have cumulatively invested about 9.45 billion USD, with funds mainly flowing into Samsung Electronics and SK Hynix related products. In just the last three weeks, the net inflow of the SK Hynix leveraged ETF was about 2.92 billion USD, and the net inflow of the Samsung Electronics leveraged ETF was about 1.56 billion USD, totaling nearly 4.5 billion USD.

Korean residents invested about 70 billion USD in stocks and ETFs in the second quarter.

In the last three weeks, SK Hynix related products saw net inflows of about 18.5 trillion, 11.5 trillion, and 13 trillion KRW, while Samsung Electronics related products had net inflows of about 11.6 trillion, 518.5 billion, and 619.6 billion KRW.

During the same period, the KOSPI has fallen about 24% from its June peak, SK Hynix is down about 35%, and Samsung Electronics is down about 28%. Judging by the timing of capital inflows and the corresponding declines, a significant portion of the new funds entering the relevant leveraged ETFs in recent weeks is likely already in a floating loss state.

Single-stock leveraged ETFs adjust positions daily; when the underlying stocks continuously decline, leverage amplifies the decline, and high volatility can also cause additional net asset value losses. Therefore, the actual losses of the relevant products typically exceed the declines of Samsung Electronics and SK Hynix themselves.

As mentioned earlier, Korean residents invested about 70 billion USD in stocks and ETFs in the second quarter, but foreign capital has cumulatively net sold about 110 billion USD of Korean stocks this year. While foreign capital continues to divest, Korean retail investors are still increasing stock exposure through margin accounts, CFDs, and single-stock leveraged ETFs.

In simple terms, foreign capital is continuously selling, while Korean retail investors are continuing to buy the dip through leveraged products despite incurring floating losses.

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