Retail investors welcome gov’t plan for single-item leveraged ETFs amid semiconductor boom
An electronic board shows the KOSPI ending at 5,221.25 points at Woori Bank in Seoul, Thursday. Yonhap
Kim Moo-jin, an office worker in his 30s, said he was glad to hear news reports about the government plan to introduce leveraged exchange-traded funds (ETFs) tracking Korea’s leading listed companies, including major semiconductor manufacturers.
“This will change how I invest,” he said. “Shares of SK hynix and Samsung Electronics are flying. Artificial Intelligence demand will continue to explode, and now I can make money more safely.”
He added that many of his friends had turned to margin loans, only to face margin calls from brokerages and ultimately see their assets forcibly liquidated.
“Many of my friends have taken out loans against their stocks from the brokerages. I have seen some of them making money fast. But I have also seen others losing all of their holdings just as fast,” Kim said.
A margin loan refers to borrowing money from a brokerage using existing shares as collateral. A margin call occurs when a brokerage demands additional funds or securities after share prices fall.
If investors fail to meet those calls, brokerages can liquidate the shares in the account, often selling them at the lowest price in the following session.
Park Ji-eun, an office worker in her 40s, said leveraged ETFs are what she has been waiting for for years.
“I have heard about many who are losing money rapidly after they bought inverse products that had bet against the strong equity market performance. I see why they have no faith in the Korean capital market, given the stagnant market over the past few years. But if you talk about leveraged ETFs tracking strong industry players like Samsung Electronics and SK hynix, it’s a different story. I am willing to go for that. Many would.”
She had friends with holdings of leveraged ETFs in the U.S. stock market, and some, she felt, would consider directing their money into Korea.
Kim and Park are among a growing number of retail investors in Korea expressing optimism about the Financial Services Commission’s (FSC) plan to introduce leveraged ETFs tracking individual domestic blue-chip stocks.
FSC Chair Lee Eog-won said Wednesday that the government will swiftly move ahead with the regulatory process. “We are pushing to allow single-stock leveraged ETFs. Necessary procedures will take shape as early as Friday,” he said during a press conference.
Under the plan, two-times leveraged ETFs will be introduced. The plan will limit eligible underlying stocks to “exceptionally solid companies.”
Criteria under review include market capitalization, average daily trading volume, derivatives market activity and inclusion in major global indices.
The move came amid the country’s two semiconductor powerhouses breaking all-time highs.
SK hynix and Samsung Electronics shares closed at 861,000 won and 160,700 won, Thursday, up 2.38 percent and down 1.05 percent respectively.
