Institutional investors bet on stock market decline

Amid lingering market uncertainties alongside rising US Treasury yields, local institutional investors seem to have started betting against the equity market, investing in inverse exchange traded funds.

Inverse ETFs are designed to make money when target stocks or underlying indexes decline in value.

According to data compiled by the nation’s sole securities exchange operator Korea Exchange, investment companies, including stock brokers, bought some 200 billion-won ($177.6 million) worth of the KODEX 200 Futures Inverse 2X ETF on Friday. The amount was the largest since the ETF was listed on Sept. 22, 2016.

On the same day, foreign investors also bought 68 billion-won worth of inverse ETFs -- the largest amount purchased by foreign investors for the past several years.

Deep pocketed institutional investors’ recent buying of inverse ETFs is thought to be in line with highly volatile stock markets in recent weeks.

The 10-year US Treasury yield has been on an upward trend, reaching an annual high of 1.6 percent last Thursday. The rising bond yields triggered sell-offs in the local stock market in recent days. The nation’s benchmark Kospi slid 2.8 percent to close at 3,012.95 on Friday, following a 2.45 percent decline on Wednesday.

“There is a chance that the Kospi index could drop to the 2800 level,” said a market watcher in the stock market, adding “Institutional investors’ buying of inverse ETFs also indicates the stock market will have additional corrections down the road.”

By Kim Young-won (wone0102@heraldcorp.com)