Investors Flocking to Inverse Funds Amid Increased Stock Market Volatility

Top 3 ETF Trading Volumes All Inverse
Experts: "The Higher the Leverage, the Shorter the Inverse Investment Period Should Be"

[Asia Economy Reporter Lee Myunghwan] Money is flowing into inverse exchange-traded funds (ETFs) that track stock indices inversely. As the domestic stock market ended its bear market rally and volatility expanded again, investors are interpreted to be betting on index declines.

On the 31st, Asia Economy examined the trading trends of ETFs listed on the domestic stock market from the beginning of this month until the 29th, revealing that the top three ETFs by trading volume during this period were inverse ETFs. The so-called "Gobbus" product, 'KODEX 200 Futures Inverse 2X,' which tracks the KOSPI 200 futures index inversely by two times, ranked first in trading volume, followed by 'KODEX KOSDAQ 150 Futures Inverse' and 'KODEX Inverse.' Even when looking at trading value rankings, three inverse ETFs were among the top 10. A similar trend was observed on the 29th, when the domestic stock market plunged due to hawkish remarks by Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), at the Jackson Hole meeting. On that day, inverse ETFs ranked 1st to 3rd and 9th in trading volume among ETFs traded.

In global stock markets, a reversal phenomenon is also occurring where funds are flowing more into inverse ETFs. According to SK Securities, funds in ETFs that track indices positively turned to net outflows after six weeks. Conversely, inverse ETFs saw net inflows for two consecutive weeks.

This ETF fund flow indicates a negative market outlook. Joonki Cho, a researcher at SK Securities, stated, "Betting on stock market rises has decreased, and betting on declines has increased," adding, "Since betting on declines is generally considered a more active expression of opinion than betting on rises, the recent market outlook can be interpreted negatively."

When investing in inverse products with high leverage ratios, it is advantageous to keep the investment period short. Tae-hyun Seol, a researcher at DB Financial Investment, advised, "The longer the investment period, the lower the probability of recording positive returns and the lower the returns themselves," and emphasized, "The higher the leverage ratio, the more important it is to keep the investment period in inverse ETFs short."