The official statistics are out! South Korean leveraged ETFs defrauded retail investors of more than 55 billion yuan in two and a half months

First submission 10-07 23:04

Update time 10-08 07:16

Korean individual stock leveraged ETFs caused retail investors to lose at least 2.32 trillion won in just two and a half months. (AP file photo)

[Compiled by Wei Guojin/Taipei Report] Information submitted by South Korea's Financial Supervisory Service (FSS) shows that since the launch of leveraged ETFs tracking Samsung Electronics and SK Hynix on May 27, South Korean retail investors have lost 2.32 trillion won (NT$55.244 billion) in just two and a half months. This is the first time that South Korean officials have disclosed the scale of the impact caused by related investments.

South Korea's "BusinessKorea" reported that information submitted by the South Korean Financial Supervisory Service to Choi Eun-seok, a member of the National Power Party, showed that from May 27 to August 14, retail investors through the top ten securities firms have realized a cumulative trading loss of 2.32 trillion won. This data does not include unrealized losses from investors who still hold related products and losses from transactions completed through small brokerage firms, so the actual scale of losses is expected to be more substantial.

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Such a huge loss was caused so quickly in a short period of time, reflecting the volatility of the underlying assets and the structural risks of leveraged products. Leveraged individual stock products are designed to track twice the daily rise and fall of the underlying stock, which means that when individual stock prices fall, losses will be magnified. In addition, when stock prices consolidate or fluctuate violently, these products will be impacted by the "negative compounding effect" of debt-to-debt, causing investors' principal to be quickly eroded.

Take Samsung Asset Management's KODEX SK Hynix Individual Stock Leveraged ETF as an example. Its stock price soared to 44,358 won on June 23. Subsequently, concerns that semiconductor stock prices may have peaked permeated the market, causing it to fall to 6,000 won intraday on July 29. As of the close of trading on October 6, the product stood at 10,700 won, down about 76% from its highest point. Citigroup Global Markets estimates that the violent fluctuations in South Korea's leveraged ETFs caused retail investors to lose as much as 56 trillion won (NT$1.33 trillion).

South Korea's financial regulatory authorities failed to curb further losses among investors and have suspended the listing of new individual stock leveraged ETFs and inverse commodities since July 16. Since late July, the minimum cash deposit threshold has also been increased to 30 million won, and investors have been forced to receive relevant investment education to increase entry barriers. From November, more measures will take effect, including increasing the minimum order quantity to 20 shares.

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