Last month, inverse ETFs dominated the trading volume rankings in South Korea. As the domestic stock market hit its yearly high and then experienced a downward adjustment, investors showed increased interest in ‘Inverse Exchange Traded Funds (ETFs)’ that bet on stock price declines.
Inverse ETFs are financial products designed to generate profits from declines in the value of a specific index or benchmark by moving in the opposite direction.
According to Koscom, the ETF with the highest average daily trading volume in July was Samsung Asset Management’s ‘KODEX 200 Futures Inverse 2X’. This product tracks the daily returns of the KOSPI 200 futures index inversely by a factor of two. It saw 160 million shares traded last month.
The second and third spots in trading volume were also taken by Samsung Asset Management products. The second was ‘KODEX KOSDAQ 150 Futures Inverse’, with a trading volume of 26.28 million shares. The third was ‘KODEX Inverse’, which recorded a trading volume of 20.91 million shares. These products respectively track the daily returns of the KOSDAQ 150 futures index and the KOSPI 200 futures index inversely.
Along with trading volume, trading value of ETFs also surged in S. Korea.
Last month, the average daily trading value of ‘KODEX 200 Futures Inverse 2X’ was 308.7 billion won, ranking second among all ETFs. Institutions net bought 281.1 billion won, foreigners net bought 67.2 billion won, and individuals net sold 337.3 billion won. The average daily trading value of ‘KODEX KOSDAQ 150 Futures Inverse’ was 93.2 billion won (8th place), and ‘KODEX Inverse’ was 83.5 billion won (9th place).
Meanwhile, last month, the KOSPI index and KOSDAQ index fell by 0.97% and 4.44%, respectively. The KOSPI 200 futures index (-1.13%) and the KOSDAQ 150 futures index (-1.54%) also saw declines.
The KOSPI index reached its yearly high of 2891.35 on July. 11 but then declined sharply. This decline is predicted to result from a combination of factors, including concerns over an artificial intelligence (AI) bubble, increasing geopolitical risks in the Middle East, and fears of a U.S. economic recession.
As major indices wavered, inverse ETFs recorded positive returns last month. This is because inverse ETFs gain value when major indices decline, making them attractive during market downturns.
For instance, ‘KODEX 200 Futures Inverse 2X’ rose by 2.12%, ‘KODEX Inverse’ by 1.37%, and ‘KODEX KOSDAQ 150 Futures Inverse’ by 3.27%. With the Korean stock market continuing to show weakness in August, investor interest in inverse products is expected to persist for some time.
Experts predict that short-term market volatility will increase but caution against excessive concern.
Lee Kyung-min, a researcher at Daishin Securities, stated, “Although the economic slowdown may be sharper than expected, it is too early to talk about a recession. Short-term fluctuations may persist, but maintaining or even increasing exposure could be a good strategy.”
