Retail Investors Also Buying Inverse ETFs in the Raw Materials Market

Investment in ETN Market This Month
8 Out of Top 10 Stocks Are Inverse

[Asia Economy Reporter Minji Lee] As price volatility in the raw materials market expands, individual investors are jumping on the ‘Multiply Bear’ investment, which seeks twice the profit of the index decline price fluctuation range. Since the beginning of this month, individual investors have been expanding their investments in ‘Inverse 2X Silver Futures’, ‘Inverse 2X WTI Crude Oil Futures’, and ‘Inverse 2X Natural Gas Futures’.

According to the Korea Exchange on the 5th, among the top 10 stocks purchased by individuals in the Exchange-Traded Note (ETN) market this month, eight were invested with the expectation of a decline in commodity prices. Conversely, these volumes are being sold to liquidity providers (LPs) in the order of ‘Shinhan Leverage WTI Crude Oil Futures’ (6.6 billion KRW), ‘Samsung Leverage WTI Crude Oil Futures’ (6.0 billion KRW), and ‘Shinhan Leverage Silver Futures’ (5.8 billion KRW).

The reason individuals are betting more on a decline rather than a rise in crude oil prices is interpreted as a reaction to the steeper-than-expected increase in oil prices. The market had anticipated a recovery in oil demand this year, but due to high inventory levels and a weakening of cooperation from OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) and Russia and other non-OPEC major oil-producing countries) over prolonged production cuts, prices were expected to remain in the $40?50 range. On the 4th (local time), March delivery West Texas Intermediate (WTI) crude oil on the New York Mercantile Exchange recorded $56.33.

The expansion of bearish bets on silver prices is due to recent U.S. individual investors. As they aggressively accumulated silver, claiming that ‘institutions are deliberately suppressing silver prices,’ silver prices surged about 10% in one day, reaching $29.42 per troy ounce. Natural gas also surged 14% this month, rising to $2.94 per MMBtu. Due to unprecedented cold weather in the Asia region causing a sharp increase in natural gas demand, the shutdown of nuclear power plants in Japan, and China’s ban on Australian coal imports, natural gas prices rose, leading individuals to anticipate price declines and invest accordingly.

The securities industry expects commodity prices to rise further. Oil prices are expected to recover steadily based on the commercialization of COVID-19 vaccines and global economic recovery prospects. Kiwoom Securities researcher Soobin Shim explained, “This is due to tight supply and demand forecasts and expectations of reduced oil inventories,” adding, “From the demand side, expectations for oil demand in non-OECD countries such as China are increasing.”

Silver is expected to maintain an upward trend despite short-term volatility. NH Investment & Securities researcher Byungjin Hwang predicted, “With expanding inflation expectations in the first half of the year and inflation hedge expansion amid real interest rate control, silver prices could rise to $35 per ounce.” Regarding natural gas, there is a forecast that prices will exceed $3 per MMBtu. Samsung Futures researcher Kwangrae Kim said, “Demand increases due to the Northern Hemisphere cold wave in Asia, Europe, and the northern United States will support prices,” adding, “Considering lower-than-usual inventory levels in Europe and Asia, a steady upward trend is expected to continue this month, surpassing $3.”