S. Korean retail investors rush to overseas ETFs under bear market signals

South Korean retail investors have been bagging up overseas exchange traded-funds in recent weeks as the global stock market has been struggling under bear market signals, data showed Tuesday.

Retail investors interested in overseas investments have added more high-return, high-risk ETFs to their portfolios, seeking to profit from the volatile global market.

Of the top 10 overseas investments from local investors from July 13 to Friday, seven were ETFs, latest data compiled by the Korea Securities Depository showed.

Investors bought a net $85.8 million worth of the ProShares UltraPro Short QQQ (SQQQ), which is a 3X leveraged inverse ETF that tracks the Nasdaq 100 index. The product, which is heavily weighted toward technology and telecommunications stocks, ranked No.2 in popularity on the list.

Leveraged 3X ETFs are funds that track a wide variety of asset classes, such as stocks, bonds and commodity futures, and apply leverage in order to gain three times the daily or monthly return of the respective underlying index. Inverse ETFs on the other hand, uses various derivatives to profit from a decline in the value of an underlying benchmark.

The only product that outranked ProShares UltraPro Short QQQ was stocks of Chinese mining company Tianqi Lithium, which debuted on the Hong Kong market last month. Investors bought a net $152.2 million of Tianqi Lithium stocks in the cited period, making it the most popular overseas investment for individuals.

The Direxion Daily Semiconductor Bull 3X ETF (SOXL), which is a 3X leveraged ETF, ranked No.3 with investors buying a net $40.8 million. The Direxion Daily 20+ Year Treasury Bull and Bear 3X ETFs – which follows a market value weighted index that includes publicly issued US Treasury securities that have a remaining maturity of greater than 20 years -- came at No. 4 with a net $38 million.

Schwab US Dividend Equity ETF, JPMorgan Equity Premium Income ETF, ProShares Ultra VIX Short-Term Futures ETF and ProShares UltraShort Bloomberg Natural Gas each came from No. 6 to No. 9 in order with its investments ranging from a net $17.2 million to 23.5 million.

Besides Tianqi Lithium, there were only two other stocks on the list. US tech company Intel which came at No. 5 with a net $24.3 million and Chinese e-commerce giant Alibaba ranking at No.10 with a net $16.5 million.

This contrasts an earlier KSD data that showed US e-commerce giant Amazon as an investor favorite here, with individuals purchasing a net $227.4 million of its shares through the entire 2021.

“Retail investors are trying to amplify their investments by increasing the leverage under the current market conditions,” Seol Tae-hyun, an analyst at DB Financial Investment said.

“But under the current market condition, it is best for local investors to hold onto such inverse ETF investments for the short-term only,” he added



(mkjung@heraldcorp.com)