"I bought a full position in the inverse leveraged ETF. Please, let's go!"
"I earned my monthly salary in just one day with the inverse ETF."
[Asia Economy Reporter Kwon Jae-hee] 'High inflation, high exchange rates, high interest rates.' Amid these triple hardships, the stock market has sharply declined this year, leading individual investors to flock to inverse exchange-traded funds (ETFs) that bet on a falling market. As the market shows no signs of rebound amid continuous negative factors, funds are pouring into inverse and leveraged inverse products (2x inverse products) that track the index movement inversely. However, while these products can yield high returns in a declining market, caution is required because if the market rebounds amid ongoing volatility, losses can be equally significant.
According to the Korea Exchange on the 13th, among the top 20 ETF performers over the past month (September 12 to October 13), 19 were inverse or leveraged inverse products. Notably, among the top 10 performers, six were leveraged inverse products. Inverse ETFs track the index movement inversely, meaning the more the underlying asset price falls, the more profit is generated. The fact that most of the top-performing ETFs are inverse or leveraged inverse products indicates that the overall stock market is in a downward trend.
In fact, the KOSPI index has fallen about 30% this year. On the first trading day of the year, January 3, the KOSPI reached a high of 3010.77 but closed at 2162.87 on October 13. Meanwhile, during this period, inverse and leveraged inverse ETFs recorded returns of up to approximately 80%.
The ETF with the highest return over the past month was 'KODEX 200 Futures Inverse 2X,' which posted a 17.82% return during this period. Extending the period to the beginning of the year, the return reaches an impressive 77.55%. Following this, 'KOSEF 200 Futures Inverse 2X,' 'ARIRANG 200 Futures Inverse 2X,' 'KBSTAR U.S. Long-Term Treasury Futures Inverse 2X,' and 'TIGER 200 Futures Inverse 2X' ranked 2nd to 5th, with an average return of 17.5% over the past month.
Trading volume has also surged explosively. The product attracting the most funds over the past month was 'KODEX 200 Futures Inverse 2X,' with a massive 15.528 trillion KRW concentrated. The second-largest in trading volume was 'KODEX Leverage (tracking KOSPI 2x),' which attracted 8.6174 trillion KRW, meaning the fund size gap between first and second place is about twice.
Individual investors are betting on a falling market because it has become increasingly difficult to find momentum for a market rebound. Central banks worldwide, led by the U.S. Federal Reserve (Fed), are strengthening their interest rate hike stance, and inflation remains unchecked despite rate increases, further fueling market declines. The prolonged Russia-Ukraine war is also dragging global markets into stagnation.
As the market is expected to remain weak for the time being, the number of individual investors investing in inverse and leveraged inverse products is expected to increase. However, experts warn that concentrating investments in inverse products anticipating a falling market is risky. Especially with leveraged inverse products, losses can exceed twice the amount if the market rises. These products are designed to deliver 'high risk-high return' in a falling market, so in the opposite scenario, the losses investors must bear can be even greater.
Joon-ki Cho, a researcher at SK Securities, said, "The inflow of funds into leveraged and inverse ETFs indicates a risk-off trend in the ETF market. While funds are flowing out of regular ETFs, there is a net inflow into inverse ETFs, suggesting increased betting on a market decline."
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