'Single-Stock Leveraged ETF Blow' Crippled KOSDAQ in July... Hopes Rise for a Turnaround in August with 11.38% Surge [Weekend Money]

KOSDAQ Hit by Concentrated Trading in Single-Stock Leveraged ETFs
KOSDAQ Sentiment Improving Following Single-Stock Leveraged ETF Regulations

Last month, the scale of trading on the KOSDAQ market shrank to its lowest level in 11 months. This was mainly due to a sharp concentration of transactions in single-stock leveraged Exchange-Traded Funds (ETFs), which dealt a direct blow to the KOSDAQ market. However, as tighter regulations on single-stock leveraged ETFs take effect this month, there are rising expectations that the KOSDAQ will gradually recover.

On the 7th, the KOSPI and KOSDAQ indexes are displayed on the status board in the dealing room of Hana Bank in Jung-gu, Seoul, where the KOSPI started higher. Photo by Yonhap News

KOSDAQ Hit Hard by Concentration in Single-Stock Leveraged ETFs

According to the Korea Exchange on the 8th, the KOSDAQ market’s average daily trading value in July was 6.1 trillion won, marking the lowest level in 11 months since August last year, when it recorded 5 trillion won. Compared to June, when it reached 10 trillion won, this represents a 40% plunge in just one month. The figure is also nearly a third of the 15.5 trillion won recorded in May.

As trading activity contracted, turnover also decreased. The turnover rate, measured by market capitalization in the KOSDAQ market last month, stood at 30.4%, which was also the lowest since August last year over the past 11 months. Stock turnover refers to the ratio of shares traded relative to listed shares over a certain period and is an indicator of market liquidity.

The KOSDAQ index also saw a sharp decline. After hitting its peak for the year at 1,229.42 in April, the KOSDAQ index fell to as low as 630 last month, effectively halving in just three months. Major sectors such as bio, secondary batteries, and semiconductor materials, parts, and equipment experienced significant slumps.

Experts point to the launch of single-stock leveraged ETFs targeting Samsung Electronics and SK hynix in late May as a trigger for the steep drop in the KOSDAQ index. Jae-won Lee, a researcher at Yuanta Securities, explained, “The root cause of the KOSDAQ’s underperformance was the departure of individual investors who had been the main net buyers. From the beginning of this year through last month, individuals bought a net 114 trillion won in KOSPI, while selling a net 9.8 trillion won in KOSDAQ.”

Mr. Lee further analyzed, “The single-stock leveraged ETFs launched on May 27 channeled a significant amount of retail investor capital into Samsung Electronics and SK hynix. With the disappearance of both net buying parties and trading liquidity from the KOSDAQ, the index breached both the 60-day and 120-day moving averages in succession, and the magnitude of the decline exceeded what could be explained by changes in individual company fundamentals.”

KOSDAQ Recovers as Single-Stock Leveraged ETF Regulations Tighten

However, as regulations on single-stock leveraged ETFs are enforced in earnest this month, there are growing prospects for a recovery in the KOSDAQ market. In fact, as of the 6th of this month, the KOSDAQ has surged by 11.38%, far outperforming the KOSPI, which recorded a -4.53% return over the same period.

Mr. Lee noted, “Since August, there has been a continuous shift of funds from large-cap semiconductor stocks to small- and mid-cap KOSPI stocks and the KOSDAQ. The main reason for this flow is the strengthened regulation on single-stock leveraged ETFs.” According to Yuanta Securities, just before the regulations took effect, the trading value of single-stock leveraged ETFs stood at as much as 13.9 trillion won on July 30, but has plunged to the 1 trillion won range.

Hak-jun Kim, a researcher at Kiwoom Securities, also forecast, “With the regulation of leveraged ETFs improving fund flows in August, there is a high possibility of a KOSDAQ rebound. Companies with improved performance and strong momentum are expected to receive more attention.”

This content was produced with the assistance of AI translation services.