KB News Desk
South Korean investors are moving into US leveraged ETFs after tighter domestic rules pushed them away, raising questions over whether efforts to curb speculative trading are shifting risk-taking activity overseas.
Trading in locally listed single-stock leveraged and inverse ETFs plunged following financial regulators’ introduction of tighter measures on single-stock leveraged ETFs, according to data from the Korea Exchange.
The combined trading value of the 16 single-stock leveraged and inverse ETFs listed in Korea stood at 925 billion won ($650 million) on Wednesday, marking the first time the figure had fallen below the 1 trillion won threshold since the products made their market debut on May 27.
The figure stood at 13.04 trillion won on July 15, a day before the new rules were announced. It remained at 12.45 trillion won on July 30, a day before the higher deposit requirement took effect, but plunged to 3.15 trillion won on July 31, the first day under the new rules.
The decline continued, with trading value falling into the 1 trillion won range at 1.39 trillion won on Aug. 3 and 1.26 trillion won on Aug. 4, before eventually dropping below 1 trillion won on Wednesday.
Demand for overseas leveraged ETFs has strengthened over the same period. Between July 16 and Wednesday, the top overseas stock favored by Korean investors was Direxion Daily Semiconductor Bull 3X ETF, also known as SOXL. Net purchases of the fund totaled $1.83 billion.
Notably, the Direxion Daily TSLA Bull 2X ETF, a two-times leveraged Tesla ETF, ranked sixth among the most-purchased overseas leveraged products, attracting $204.23 million in net purchases.
This came even as investors were scaling back their exposure to locally listed leveraged products amid concerns over tighter regulations on single-stock leveraged ETFs. The trend highlights that some investors continued to seek leveraged exposure through overseas products, including Tesla-linked ETFs, despite similar regulatory risks.
Net purchases of the Direxion Daily MSCI South Korea Bull 3X ETF, also known as KORU, stood at $51 million, making it the 23rd most-purchased overseas stock product.
Concerns are growing that US-listed leveraged ETFs expose investors to additional foreign exchange risks, while some products carry even higher volatility than their domestic counterparts due to leverage ratios exceeding two times.
“Restricting domestic products could inadvertently push investors toward even riskier overseas alternatives,” an official from a local asset manager said.
