Korean retail investors lost $38.7 billion on leveraged ETFs, Citi says
In a recent report, the bank said losses on the leveraged single-stock products have deepened during the market slump and could worsen as chip shares keep sliding.
A Citi strategist estimated that Korean retail investors lost about $38.7 billion, or 58 trillion won, on investments in leveraged exchange-traded funds (ETF) during the past month’s stock market downturn, and warned that losses could deepen even further.
Mohamed Apabhai, head of Asia-Pacific trading strategy at Citi Global Markets, estimated Korean retail investors’ cumulative losses from leveraged ETFs at $38.7 billion amid the recent stock market plunge, in a market commentary distributed to institutional investors on Tuesday.
The market note said the market capitalization of leveraged ETFs based on Korean assets peaked at $52.5 billion on June 22. Within just one month, it fell to $19 billion, a decline of $33.5 billion from the peak.
Among the products, leveraged ETFs tracking SK hynix posted the largest decline, with market capitalization shrinking by $17 billion from the peak. Leveraged Kospi 200 products lost $10.5 billion, while leveraged Samsung Electronics ETFs fell by more than $5 billion.
Even as the market capitalization of leveraged ETFs declined by $33.5 billion, investors poured an additional $6.2 billion into the investment vehicles. Taking those inflows into account, Citi estimated retail investors’ cumulative losses at $38.7 billion.
The market note warned that the market capitalization of the products could fall below $8 billion before the end of the year, suggesting losses could continue to mount.
As the stock market plunges, some are directing their anger at President Lee Jae Myung and the government.
About 40 funeral wreaths were lined up in front of the National Assembly building in Yeongdeungpo District, western Seoul, on Wednesday. The funeral wreaths were sent from a retail investor group, carrying messages such as “Massacre of retail investors” and “Delist single-stock leveraged ETFs.”
Single-stock leveraged ETFs also suffered steep losses on Wednesday.
The Kodex SK hynix Single Stock Leveraged ETF, the largest by net assets, closed at 7,925 won ($5.50), down 20.19 percent from the previous session. Compared to its listing price of 23,450 won on May 27, the ETF fell 66.2 percent. It dropped 82 percent overall from its peak price of 44,000 won on June 22.
The combined market capitalization of the 14 single-stock leveraged ETFs listed on the Korean stock market stood at 5.68 trillion won on Wednesday, according to the Korea Exchange. That figure is down 14.5 percent, or 965 billion won, from the previous session. Compared to Monday, the total fell 38.9 percent, or 3.63 trillion won.
Despite the sharp decline, retail investors have continued to buy major semiconductor stocks.
Retail investors net bought more than $16 billion worth of SK hynix shares since June 23, according to the market note. The securities firm estimated that those purchases had generated unrealized losses of about $5.7 billion during the period.
Citi estimated retail investors’ average purchase price for SK hynix shares at 2.28 million won, with an unrealized loss of 31.6 percent at the time the market note was written.
The losses were likely even larger after Wednesday’s close. SK hynix ended the session at 1.4 million won, down 9.61 percent from the previous session.
The market note also estimated that retail investors who bought Samsung Electronics shares during the same period incurred unrealized losses of about $2.4 billion. Samsung Electronics also fell 5.23 percent on Wednesday to close at 208,500 won.
BY AHN HYO-SEONG [lee.taehee2@joongang.co.kr]
