Korean retail investors surge in US ETF purchases

In July, Korean retail investors were notably active in buying ETFs listed in the US, according to ETF research firm ETFGI. Out of the top fifty international securities bought by these investors, 27 were ETFs listed in the US and Japan. Data reveals that the number of ETFs on this list increased by one from 26 in June, four from 23 in May 2024, and by two from April 2024.

Highlights

• Sixteen of the twenty-seven ETFs on the top 50 list provide leverage or inverse exposure.
• The largest purchase was US$3.05 billion of the Direxion Daily Semiconductors Bull 3X SHS ETF listed in the United States.

ETF industry in Korea

Korea’s first seven ETFs, linked to the Kospi 200 Index, debuted in October 2002 with 344.4 billion won in net asset value. The market saw its value exceed 50 trillion won in December 2019.

Local ETF transactions per day reached 2.7 trillion won as of June, more than double 1.3 trillion won in 2019. The daily transaction ranks the world’s third, following the US and China, according to the Korea Exchange. Out of the 27 ETFs featured in the top 50 list, 16 offer leverage or inverse exposure.

The largest single purchase was $3.05 billion for the Direxion Daily Semiconductors Bull 3X SHS ETF, which is listed in the US. By the end of July 2024, the Korean ETF market comprised 1,265 products with total assets of $126.37 billion, spread across 36 providers on the Korea Exchange. According to ETFGI data, 26.0% of these local ETFs offer leverage or inverse exposure, representing 9.8% of the total assets in Korea's ETF industry.

The largest South Korea ETF is the iShares MSCI South Korea ETF EWY with $4.87B in assets. In the last trailing year, the best-performing South Korea ETF was FLKR at 0.25%. The most recent ETF launched in the South Korea space was the Matthews Korea Active ETF MKOR on 07/17/23.

The most prominent feature of ETF trading by retail investors is the high proportion of trading in derivative ETFs. Since the introduction of leveraged and inverse ETFs, 60-70% of retail investors' ETF transactions have been generated from these ETFs. The problem is that leveraged and inverse ETFs are short-term, speculative products that are structurally complex and unsuitable as long-term investment vehicles. If the low cost and high accessibility of ETFs are utilized for speculative trading rather than contributing to the expansion of diversified investment opportunities, it is not desirable from the both perspective of retail investors’ investment performance and the development of the ETF market.

Top 10 overseas ETFs purchased in July 2024

DIREXION DAILY SEMICONDUCTORS BULL 3X SHS ETF

DIREXION DAILY TSLA BULL 2X SHARES

GRANITESHARES 2.0X LONG NVDA DAILY ETF

DIREXION SHARES ETF TRUST DAILY

PROSHARES ULTRAPRO QQQ ETF

PROSHARES ULTRAPRO SHORT QQQ ETF

DIREXION DAILY 20 YEAR PLUS DRX DLY 20+ YR TREAS BULL 3X

2X BITCOIN STRATEGY ETF

T-REX 2X LONG TESLA DAILY TARGET ETF

INVESCO QQQ TRUST SRS 1 ETF