[The KOSPI 2600 Era] Retail Investors Who Sold 6 Trillion Won Bought Inverse ETFs

Individual Investors Taking Profits Bet on Market Decline
Foreigners Buy Semiconductor Stocks Including Samsung Electronics and SK Hynix

[Asia Economy Reporter Oh Ju-yeon] The KOSPI, which plummeted to the 1400 level in March due to the spread of the novel coronavirus infection (COVID-19), was able to soar vertically by about 1000 points to the 2400 level in October, thanks to individual investors known as 'Donghak Ants.' From March to October, individuals alone drove the index by net buying stocks worth 37.243 trillion won in the KOSPI market. During this period, foreigners sold off 24.797 trillion won and institutions sold 14.258 trillion won. This supply and demand dynamic changed starting this month. As the KOSPI reached the previous high of around 2450, individuals began selling the stocks they had accumulated over eight months, and foreigners filled this gap.

According to the Korea Exchange on the 24th, from the 2nd to the 23rd of this month, individuals net sold stocks worth 5.937 trillion won, marking the first monthly net selling trend this year. Individuals had shown net buying of 4.4 trillion won and 4.8 trillion won in January and February, respectively. Even when the index plunged to the 1400 level in March due to the COVID-19 crisis, individual buying momentum strengthened. In March alone, individuals swept up over 11 trillion won worth of stocks, engaging in bottom-fishing. Thereafter, individuals continued net buying at an average scale of 3 to 4 trillion won monthly, but this month, they have net sold nearly 6 trillion won, realizing profits on the stocks they had accumulated.

On the other hand, foreigners consistently net sold every month except July after net selling 12.55 trillion won in March. However, this month, foreigners have net bought stocks worth 6.415 trillion won, pushing the index from the 2400 level to the 2600 level. Foreigners focused on major semiconductor stocks such as Samsung Electronics and SK Hynix, as well as leading secondary battery stocks like LG Chem and Samsung SDI.

The only stock type that individuals, who focused on selling this month, added to their portfolios was 'Inverse' products that generate profits when the index falls. Individuals purchased KODEX 200 Futures Inverse 2X Exchange-Traded Funds (ETF) worth 677 billion won. Including KODEX Inverse (136 billion won), the total amounts to about 800 billion won. However, the price of this product dropped 27.16% from the opening price of 4,400 won on the 2nd to 3,205 won as of 10:20 a.m. on the day. The loss rate of KODEX Inverse also reached 15.40%.

Lee Jae-sun, a researcher at Hana Financial Investment, analyzed, "Despite the strengthening of social distancing measures, the inflow of foreigners' net buying continues," adding, "The biggest factors moving emerging market stocks are the weak dollar and strong commodity prices, with copper prices surpassing $7,000 per ton last week, repeatedly hitting new highs."

Kim Yong-gu, a researcher at Samsung Securities, also explained, "Although some technical overheating signals have been confirmed due to the short-term rise, since the recent main supply and demand player, foreigners, maintain their buying momentum, profit-taking volumes are expected to be smoothly absorbed." Researcher Kim diagnosed, "Attention is needed on sectors where foreign buying is concentrated, such as chemicals, electrical and electronics, transportation equipment, finance, and machinery."