KODEX Leverage ETF, -10.09%
KODEX KOSDAQ 150 Leverage ETF, -16.07%
[Asia Economy Reporter Hwang Yoon-joo] After the U.S. Federal Reserve (Fed) implemented three consecutive giant steps (raising the benchmark interest rate by 75 basis points at once), exchange-traded fund (ETF) investors have been betting on a stock market rebound. The loss rate over two weeks reached 10%. This is interpreted as reflecting expectations of interest rate cuts amid growing concerns about an economic recession. Since the Fed's tightening stance is likely to continue, advice has been given that diversified investments are necessary.
According to the Korea Exchange on the 6th, following the September Federal Open Market Committee (FOMC) regular meeting (September 21 to October 5), the top three ETFs by fund inflow were KODEX 200TR, KODEX Leverage, and KODEX KOSDAQ150 Leverage.
Specifically, KODEX 200TR attracted 461.7 billion KRW, KODEX Leverage 282 billion KRW, and KODEX KOSDAQ150 Leverage 262 billion KRW.
The returns during the same period were dismal. The top fund inflow ETF, KODEX 200TR, recorded -4.72%. The leveraged products, KODEX Leverage and KODEX KOSDAQ150 Leverage, posted -10.09% and -16.07%, respectively. Leverage products are high-risk financial instruments that move twice the volatility of the index. While they can yield large profits through short-term trades when the market rebounds, losses are also greater when the market falls. In fact, the KOSPI and KOSDAQ indices fell by 6.45% and 9.87%, respectively, during the same period.
Investors flocked to leveraged products because the possibility of an economic recession is increasing due to the impact of high-intensity tightening. When an economic downturn occurs, central banks lower benchmark interest rates to stimulate the economy. This is interpreted as reflecting expectations that the stock market will rebound due to the Fed's pivot (policy shift from tightening to easing).
Contrary to expectations, U.S. employment data and the Fed's stance support tightening policies. The U.S. private sector employment index for September increased at the largest rate in three months. The number of non-farm payroll employees was 208,000 year-on-year, similar to the forecast (200,000), but significantly higher than the previous month (185,000).
Additionally, Mary Daly, President of the Federal Reserve Bank of San Francisco, expressed her intention to continue monetary tightening to ease inflation, stating that "further rate hikes are necessary."
Moon Nam-jung, a researcher at Daishin Securities, said, "A diversified asset allocation strategy responding to U.S. interest rate hikes beyond the stock sector is necessary," adding, "In the second half of the year, tactical responses are needed in safe assets and temporary risk-on phases."
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