South Korean retail investors loaded up on a U.S.-listed exchange-traded fund that delivers triple the daily return of the Korean stock market, even as the KOSPI posted its steepest weekly loss since the 2008 global financial crisis. The fund tumbled more than 40% in a single week, yet investors poured money in, treating the market's sharp slide as an aggressive buying opportunity.
Domestic investors bought a net $267.67 million, or about 350 billion won, of the Direxion Daily MSCI South Korea Bull 3X ETF (KORU) between the 13th of this month and the previous day, according to the Korea Securities Depository on the 20th. That made it the second-largest net purchase among all U.S. stocks over the period, trailing only the Direxion Daily Semiconductor Bull 3X ETF (SOXL), a triple-leveraged U.S. chip fund, at $2.4809 billion. KORU tracks three times the daily return of the MSCI Korea 25/50 Index, which is made up mainly of large- and mid-cap Korean stocks.
The KOSPI plunged 14.46% last week, while KORU returned minus 40.39%. Selling pressure intensified around large-cap chip stocks such as Samsung Electronics and SK hynix as concerns over returns on artificial intelligence investment, the catch-up by Chinese memory chipmakers and the burden of high interest rates converged. While a large-scale foreign exodus rattled the domestic market, retail investors effectively bet on a rebound in Korean shares that had fallen the furthest.
Bargain hunting by individual investors was also pronounced in the domestic ETF market. The top net buy among individual investors last week, from the 12th to the 16th, was KODEX Leverage, with purchases of 773.3 billion won over the week. Buying also flowed into KODEX KOSDAQ150 Leverage at 379.1 billion won and KODEX Semiconductor Leverage at 202.3 billion won, bringing combined net purchases of the three double-leveraged ETFs to 1.3547 trillion won. All three posted losses of 20% to 30% over the period, yet individuals raised their exposure.
Retail enthusiasm for heavily beaten-down assets spread to U.S. chip and technology shares as well. Over the past week, money also flowed into quantum computing company IonQ at $137.03 million and the ProShares UltraPro QQQ (TQQQ), a triple-leveraged Nasdaq ETF, at $89.87 million, alongside SOXL and KORU. Net purchases of U.S. stocks by domestic investors reached $4.21739 billion this month, more than four times the $1.00129 billion bought over all of last month.
In the five previous instances when the KOSPI fell more than 20% over eight trading sessions, median returns over the following two weeks, one month and three months were 19%, 8% and 26%, respectively, according to Goldman Sachs. While markets have frequently rebounded after such steep selloffs, analysts said investors should be mindful of further volatility when buying highly leveraged products. "Because these products track a multiple of the daily return, repeated sharp swings in the market can leave losses unrecovered even if the underlying index rebounds," an official in the financial investment industry said.