Large Inflows into ETFs Surge Ninefold Compared to Early Year

Transaction Value 9.5942 Trillion, Trading Volume 10 Times Higher... Market Cap and Net Asset Value Decline Amid Global Stock Price Drop

[Asia Economy Reporter Song Hwajeong] Amid increased stock price volatility and a significant rise in stock market trading volume due to the novel coronavirus infection (COVID-19), trading volume of exchange-traded funds (ETFs) has also surged sharply.

According to the Korea Exchange on the 30th, as of the 27th, ETF trading volume reached 9.5942 trillion KRW, nearly nine times higher than the 1.8006 trillion KRW at the beginning of the year. Trading units also increased more than tenfold, from 126.8 million units at the start of the year to 1.14087 billion units.

In the volatile market, leveraged ETFs and inverse ETFs showed remarkable growth. Trading volume of leveraged ETFs jumped from 439.1 billion KRW at the beginning of the year to 2.952 trillion KRW, while inverse ETFs surged from 300.2 billion KRW to 5.5043 trillion KRW during the same period. Meanwhile, the KOSPI trading volume increased from 4.6382 trillion KRW to 12.8519 trillion KRW. As the index fluctuated sharply, investment in inverse ETFs betting on further stock price declines increased, and leveraged ETF investments also rose, reflecting expectations of a future rebound after significant price drops.

Although volatility expanded and funds aiming to invest in ETFs increased, the total market capitalization and net asset value decreased due to the global stock price decline. The total ETF market capitalization shrank from 51.2787 trillion KRW at the beginning of the year to 44.5233 trillion KRW as of the 27th. Similarly, net asset value decreased from 51.9206 trillion KRW to 44.649 trillion KRW during the same period.

On the other hand, leveraged and inverse ETFs showed an increase in both market capitalization and net asset value. For leveraged ETFs, market capitalization grew from 4.7322 trillion KRW at the start of the year to 6.0574 trillion KRW, and net asset value rose from 4.616 trillion KRW to 6.1409 trillion KRW. Inverse ETFs also saw a slight increase, with market capitalization rising from 2.0433 trillion KRW to 2.1884 trillion KRW, and net asset value increasing from 2.0697 trillion KRW to 2.4952 trillion KRW.

Returns diverged between leveraged and inverse ETFs, especially influenced by the decline in oil prices. The top-performing ETFs up to the 27th of this year were oil futures inverse ETFs. KODEX WTI Oil Futures Inverse (H) rose 110.56%, ranking first, followed closely by TIGER Oil Futures Inverse (H) at 110.55%. Other top performers included TIGER 200 Futures Inverse 2X (37.63%), KBSTAR 200 Futures Inverse 2X (36.27%), and KODEX 200 Futures Inverse 2X (36.14%). Conversely, KODEX WTI Oil Futures (H) fell 63.64%, the largest decline, followed by TIGER Oil Futures Enhanced (H) down 62.37%. Other bottom performers included KBSTAR US S&P Oil Production Companies (Synthetic H) (-62.20%), TIGER 200 Energy Chemical Leverage (-54.36%), TIGER India Nifty 50 Leverage (Synthetic) (-54.10%), and TIGER Euro Stoxx Leverage (Synthetic H) (-49.03%).

Researcher Bae Hojin of Korea Investment & Securities said, "Leveraged and inverse ETFs can be good tools if used properly for directional investment, but their risks are very high. There are many risk factors such as increased volatility depending on direction, increased risk from derivative investments, and cost aspects. While large profits can be expected if the direction is correct, massive losses are inevitable if the opposite occurs."