Even as the Stock Market Rebounds, Retail Investors Betting on 'Gobverse'

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[Asia Economy Reporter Minwoo Lee] Although the stock market has recently shown signs of rebound, individual investors have been buying large amounts of inverse exchange-traded funds (ETFs) that allow them to profit when the index falls. This is because uncertainties such as the U.S. presidential election and the resurgence of COVID-19 have not subsided, leading them to bet on a decline in stock prices.

According to the Korea Exchange on the 8th, the most net-purchased stock by individuals this month up to the previous day was 'KODEX 200 Futures Inverse 2X.' This product is designed to yield a 2% profit when the KOSPI falls by 1%. Nicknamed 'Gobbus' (a combination of 'multiply' and 'inverse'), individuals have purchased a total of 215.2 billion KRW of this product this month. This is nearly 2.5 times more than the second most net-purchased stock this month, SK Biopharm (87.7 billion KRW). On the 7th alone, 121.1 billion KRW was net-purchased. This is the first time since July 13, when 138.6 billion KRW was bought, that individuals have net-purchased over 120 billion KRW of this product in a single day. Additionally, ETFs that track index declines such as 'KODEX Inverse' and 'KODEX KOSDAQ150 Futures Inverse' ranked high in net purchases for October.

Until August, when the KOSPI fluctuated sharply?reaching a yearly high of 2458.17 on August 13 and dropping to the 2200 range?interest in KODEX 200 Futures Inverse 2X had waned. In August, individuals net-sold 22.7 billion KRW of this product. Interest began to pick up again from late last month, when fluctuations repeated. Starting from September 25, when the KOSPI dropped to the 2200 range and began to rebound, net buying resumed in earnest. Except for September 29, net purchases continued. The total net purchase amount was 33.4 billion KRW in September and expanded to 215.2 billion KRW in October. This marks a return to monthly net purchases exceeding 200 billion KRW since July.

On the other hand, there is a trend of withdrawing from leveraged ETFs that track index rises. Individuals have already net-sold 144.6 billion KRW of 'KOEX Leverage,' an ETF that tracks the daily return of the KOSPI 200 index at twice the rate, this month. This ranks fourth among net sales this month. Net selling has continued for six consecutive trading days since September 25. 'KODEX KOSDAQ150 Leverage,' which tracks the rise of the KOSDAQ 150 index, also saw continuous net selling during the same period, with a total of 101.2 billion KRW sold.

As uncertainties increased due to the shaky U.S. tech stocks ahead of the U.S. presidential election and concerns over the resurgence of COVID-19, individual investors quickly responded to the market downturn. Since last month, the domestic stock market has shown limited upside, and fatigue from the approximately five-month-long rally has compounded. Ji-young Han, a researcher at Cape Investment & Securities, analyzed, "Amid fatigue from the rally, concerns over adjustments in U.S. tech stocks, difficulties in additional stimulus negotiations in the U.S. Congress, and other domestic and international burdens have overlapped, weakening the market's risk appetite."

As uncertainties are expected to persist for the time being, such movements by individual investors are likely to become more pronounced. Seunghan Kim, a researcher at Yuha Securities, predicted, "Since March, the global stock markets have continued a rally, but volatility has increased in August and September. Political uncertainties, such as the impact of U.S. President Donald Trump's COVID-19 diagnosis on the upcoming election, and domestic issues like capital gains tax on stocks and the government's enforcement of stricter major shareholder requirements, will act as variables increasing volatility in domestic and international markets in October."

Meanwhile, concerns have been raised that using products like inverse ETFs not for risk management but as a means of 'quick profits' carries significant risks. A financial investment industry official said, "The fact that individual investors have already responded quickly by flocking to inverse-related ETFs and crude oil ETFs in the second quarter shows that they have built up experience. However, these products are mainly used by institutions for risk management, and relying on them as a primary source of profit carries high risk, so investments should be made cautiously."

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