Two-Seam Fastballs Diverge at 3000 Pitches... Foreigners 'Go Further', Retail Investors 'Go Short'

Foreigners Focus on Buying Leveraged Index Products This Month
Individuals All-In on 'Gobbus'... "Caution Needed in Foreign-Led Market"

[Asia Economy Reporter Minwoo Lee] Since December, the KOSPI has continued its upward trend, breaking through the 3000-point mark again. While foreign investors have been buying large amounts of exchange-traded funds (ETFs) that anticipate an index rise, individual investors have been accumulating products that expect the index to fall. Given the increasing dominance of foreign investors, experts point out that individual investors need to invest cautiously.

According to the Korea Exchange on the 9th, foreign investors have net purchased a total of 2.1096 trillion KRW in the KOSPI market so far this month. Excluding Samsung Electronics (1.4266 trillion KRW) and Samsung Electronics preferred shares (186.1 billion KRW), the stock most heavily accumulated by foreigners was KODEX200 (143.8 billion KRW). This product closely tracks the KOSPI 200 index, which consists of the stock prices of the top 200 leading companies by industry in the domestic stock market. Except for a net sale of 5.7 billion KRW on the 3rd, foreigners have net purchased this product daily this month. Additionally, leveraged products that track double the index's rise, such as KODEX Leverage (85.3 billion KRW, 9th place) and KODEX KOSDAQ150 Leverage (46.2 billion KRW, 17th place), also ranked high among foreign net purchases. This indicates expectations of a rise centered on large-cap stocks.

With the recent rise in both the KOSPI and KOSDAQ, breaking through the 3000 and 1000 points respectively for the first time in a while, it is interpreted that investors are aiming for further gains. The KOSPI closed at 3001.80 the previous day, marking the first close above 3000 since the 22nd of last month, about half a month ago. On the same day, the KOSDAQ closed at 1006.04, surpassing the 1000 mark for the first time since the 26th of last month.

In contrast, individual investors showed the opposite behavior. They accumulated products that track index declines in large amounts. According to the Korea Exchange, the top net purchase by individual investors during the same period was KODEX 200 Futures Inverse 2X. This product, known as ‘Gopbus’ (a combination of ‘multiply’ and ‘inverse’), moves inversely at twice the rate of the KOSPI 200 index: if the index rises 1%, the product falls 2%, and vice versa. Individuals purchased a total of 590.7 billion KRW worth of this product, more than twice the amount of the second-ranked TIGER China Electric Vehicle SOLACTIVE (247.3 billion KRW). Additionally, KODEX Inverse, which directly tracks the KOSPI decline, ranked 7th with net purchases of 77.4 billion KRW. Throughout this month, individual investors have been steadily selling stocks to realize profits while anticipating a future index decline, focusing on accumulating these ‘inverse’ products. Already, individual investors have net sold a total of 3.1897 trillion KRW in the KOSPI market so far this month.

As foreign investors’ market dominance has recently strengthened, experts warn that individual investors should be cautious about making hasty predictions and investing large amounts. Hwang Sewoon, Senior Research Fellow at the Korea Capital Market Institute, explained, "The fact that foreigners are buying index-tracking products, especially leveraged products, more than other large-cap stocks indicates strong expectations for an index rise. While individual investor funds are flowing back through indirect investment, foreign capital inflows continue, strengthening foreign dominance. In this situation, individual investors need to be very cautious about investing heavily in products like ‘Gopbus’."