Following the implementation of regulations on single-stock leveraged and inverse 2X ETFs (exchange-traded funds), average ETF turnover, which had exceeded 100%, has dropped to the 20th% range, while trading volume has also declined to one-tenth of its previous level. However, analysts caution that it remains to be seen whether this reduction in ETF trading will lead to a resolution of stock market volatility.
According to data from Korea Exchange on the 4th, the average turnover rate for 16 single-stock leveraged and inverse 2X ETFs reached 23.56% on that day. This represents a decrease of 163.51 percentage points compared to the average turnover rate of 187.09% recorded on the last trading day before the regulations took effect, which was the 30th of last month, when deposit requirements were raised by 30 million won.
Previously, single-stock leveraged and inverse 2X ETFs exhibited high turnover rates due to overheated trading enthusiasm and short-term speculative trades by investors. On May 27, the first day of their listing, the average turnover rate for the 16th ETFs reached 230.36%. Since then, the average turnover rate for these 16 ETFs has fluctuated in the double-digit percentage range. Considering that the average turnover rate for domestic stock-type leveraged and inverse ETFs is around 30%, it appears investors have treated single-stock leveraged and inverse 2X ETFs more as a tool for short-term profit-seeking rather than long-term investment products. High turnover rates indicate frequent trading by investors, reflecting a more speculative nature compared to existing leveraged and inverse ETFs.
Since the implementation of regulations including the 30th million won deposit requirement increase, the average turnover rate for single-stock leveraged and inverse 2X ETFs has shown a downward trend. On the first day of regulation enforcement, the 31st of last month, the average turnover rate fell to 54.68%, and on the 3rd of this month, it recorded 18.32%.
Trading volume also declined. The total trading value for the 16th ETFs, which was 12.4485 trillion won on the 30th of last month, shrank to 1.3301 trillion won on that day, reaching one-tenth of its previous level.
An industry official stated, "Following the implementation of regulations, we are observing changes such as a decrease in trading volume for single-stock leveraged ETFs," and added, "Just as financial authorities previously used regulations to encourage investors to move away from ELWs (equity warrants), we expect similar results this time."
However, analysts warn that it remains to be seen whether the reduction in trading of single-stock leveraged and inverse 2X ETFs will lead to a resolution of domestic stock market volatility. This is because the root causes of extreme market volatility, such as the concentration on semiconductors and the intensifying volatility of semiconductor stocks themselves, have not been alleviated. In fact, although trading volume for single-stock leveraged and inverse 2X ETFs decreased on that day, the V-KOSPI index, a measure of market volatility, rose by 1.57% from the previous day to close at 82.05.
Lee Sang-hyun, a researcher at Meritz Securities, stated, "From a global market perspective, investor sentiment regarding memory semiconductors needs to improve for domestic stock market volatility to significantly decrease," and added, "It seems unlikely that volatility will drop in the short term."
Analysts also suggest that speculative investment behavior by investors, one of the causes of stock market volatility, may not have been curbed yet. This is because individual investors did not hold single-stock leveraged and inverse 2X ETFs as long-term investments, meaning actual losses for individual investors could be smaller than expected.
Kim Min-gyu, a researcher at KB Securities, explained, "Based on calculations of returns using realized gains and unrealized gains by investors, the average return rate for 14 single-stock leveraged ETFs is -70%, but we estimate that actual trading returns for investors are around -10%." He added, "The continued high trading volume and losses smaller than expected suggest that risk appetite has not disappeared even amid sharp declines."
An official from the asset management industry stated, "Although trading volume for single-stock leveraged and inverse 2X ETFs has decreased, if the market rebounds, the scale could grow again," and added, "Given that individual investors' investment tendencies are difficult to change easily, there is a need to further strengthen regulations."
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