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"I went into leveraged products just to cover the maintenance fees."
Television personality Do Kyung-wan disclosed that his investment in a leveraged product tied to SK hynix had fallen as much as 40%. His account of being left with only about 250,000 won in his bank account drew attention, as losses by South Korean retail investors on high-risk products were found to exceed 6 trillion won.
Retail Investors Pile Into Leveraged Funds Even as Market Slides, With Those in Their 40s Hit Hardest
Retail investors' largest net purchase over the week through the 20th was KODEX Leverage, with net buying of 335.2 billion won, according to Koscom's ETF CHECK data released on the 23rd. Over the same period, retail money flowing into six major leveraged exchange-traded funds totaled 859.1 billion won.
Even on the 20th, when the KOSPI and KOSDAQ plunged 3.73% and 3.33% respectively, four of the 10 most heavily bought ETFs by retail investors were leveraged products. Including inverse products that bet on index declines, the figure rose to five, or half the list.
Foreign and institutional investors were comparatively cautious. Over the same period, foreign investors concentrated their buying on KODEX 200 (185.8 billion won) and TIGER 200 (105.4 billion won), both of which track the KOSPI 200.
Institutions spread their money across KODEX 200 Futures Inverse 2X as well as ETFs tied to certificate of deposit rates, physical gold and treasury bonds.
The problem is that losses among individuals who bought high-risk products are already substantial. Retail investors who bought single-stock leveraged and inverse exchange-traded products tied to shares including Samsung Electronics and SK hynix lost a combined 6.313 trillion won between May 27 and Aug. 14, according to data submitted by the Financial Supervisory Service to Rep. Park Sung-hoon of the People Power Party, a member of the National Assembly's National Policy Committee.
Realized losses from actual trades came to 2.3242 trillion won, while unrealized losses on holdings stood at 3.9888 trillion won. The figures combine data from 10 major brokerages including Mirae Asset, Kiwoom and Samsung, and do not include losses from the market slide in October.
By age group, investors in their 40s suffered the largest losses at 2.053 trillion won, followed by those in their 50s at 1.8655 trillion won and those in their 30s at 1.0912 trillion won. Losses among those aged 40 and under reached 3.3482 trillion won, or 53% of the total.
"Why Is hynix Falling?" — Do Kyung-wan Also Down 40% on a Leveraged Bet
Those risks were on display in the case of television personality Do Kyung-wan. On the KBS2 variety program "Stars' Top Recipe at Fun-Staurant," broadcast on the 22nd, Do was checking his brokerage account in the morning and could not hide his dismay when SK hynix shares fell.
"Why is hynix falling? And I even went into leverage," he said. "I shouldn't have gone in. My return is minus 40%."
He said he had lost money on other holdings as well. "A stock I bought at 490,000 won is now at 290,000 won," Do said, adding that he had lost about 400,000 won on another investment.
Do also explained why he had started investing in stocks. "A lot of money goes into the house," he said, adding that since his wife, singer Jang Yoon-jeong, shoulders the big expenses, he had wanted to earn at least enough to cover the maintenance fees. He said the monthly maintenance bill had once run as high as 1.5 million won, calling it "the price of one SK hynix share and three Samsung Electronics shares."
The program did not disclose the exact name of the leveraged product Do had bought or when he purchased it.
Financial Regulators Bow Their Heads, but Reject Claim of Rushed Launch
The scale of retail losses has also raised questions about the responsibility of financial regulators. At a comprehensive parliamentary audit of the Financial Services Commission and the Financial Supervisory Service held by the National Assembly's National Policy Committee on the 22nd, FSC Chairman Lee Eok-won and FSS Governor Lee Chan-jin expressed regret over the single-stock leveraged ETF episode.
Lee Eok-won said there had been various policy needs and purposes behind the introduction of the products at the time, but that he felt a heavy responsibility for the outcomes, pledging to look more closely at investor protection and market stability.
Lee Chan-jin also said he felt apologetic to the public and that the agency would reflect on the role and responsibility of financial supervisors.
Both men, however, disagreed with criticism that the products had been launched hastily. The FSC chairman said the relevant agencies had brought the products to market in line with legal procedures. The FSS governor rejected the claim of a rushed review, saying the agency had examined the products' structure and key risks during the 15-day securities registration statement review period.
The audit also took up abnormal price moves in leveraged products tied to SK hynix.
Rep. Park Dae-chul of the People Power Party noted that on June 8, even as SK hynix shares fell more than 7%, one related leveraged product surged 49% because of a pricing discrepancy. Investors who bought just before the market close that day suffered losses of more than 40% the following day, he said.
The FSS governor said the agency put the related damage at 1,081 shares, or about 12 million won, and that it was reviewing the findings of its investigation.
After the single-stock leveraged products launched on May 27 and investment risks mounted, the government raised the basic deposit requirement to 30 million won and strengthened mandatory pre-trade education.
On the possibility of scrapping the products, however, the FSC chairman was cautious, saying investors' property rights had to be taken into account.
Experts say leveraged products can magnify short-term gains but warn that losses can widen just as quickly in a sharply falling market.
