The 30 million won threshold came into effect, and Korean retail investors began abandoning leveraged ETFs to buy original US stocks
Comparatively, after South Korea's financial regulators raised the investment threshold for single-stock leveraged products, South Korean retail investors (“Western Studies Ant”) began to adjust their overseas portfolios, reduce their holdings in highly leveraged products, and switch to directly buying original US stocks.
According to data from the Korea Securities Depository on the 5th, after the minimum cash deposit for single-share leveraged products was raised to 30 million won from August 1, Tesla's 2-times leveraged product TSLL experienced a clear outflow of funds. South Korean investors still had a net purchase of TSLL of about US$14.58 million on the 3rd, but the purchase amount plummeted to US$1.56 million on the 4th, while sales rose to US$8.68 million, which turned into net sales of US$7.11 million on the same day.
In contrast, enthusiasm for buying Tesla's original shares has increased markedly. South Korean investors accumulated a net purchase of Tesla shares of about US$42.3 million from the 3rd to the 4th, more than 5 times the net purchase of TSLL over the same period.
Similar trends have also appeared in individual semiconductor stocks. Korean investors sold leveraged products from Micron (Micron) and SanDisk (SanDisk) and switched to buying underlying stocks. Among them, Mindray's 2x leveraged products changed from a net purchase of $10.81 million on the 3rd to a net sale of $15.98 million on the 4th; SanDisk's two double-leveraged products also changed from a net purchase of $17.74 million to a net sale of $33.74 million. In the same period, Mindray and SanDisk shares received net inflows of approximately $148 million and $145 million, respectively.
The Korean Financial Supervisory Authority previously announced that starting July 31, the minimum margin requirement for domestic and foreign single stock leveraged products will be raised from 10 million won, including collateral securities, to 30 million won only in cash. Existing investors will also need to meet the new standards when making additional purchases.
The new regulations allow investors to sell existing leveraged products, but if the cash deposit is insufficient, they will not be able to continue making additional purchases. Regulators said that the policy was implemented early to reduce market risk and avoid shifting capital to overseas single-share leveraged products such as Tesla and Nvidia after restricting only Korean leveraged products.
South Korea's regulatory authorities believe that single-stock leveraged products have the risk of capital concentration and structural risks of accumulation of losses due to daily yield resets. The essential risks are the same regardless of where they are listed.
However, some investors objected to this, believing that fluctuations in the Korean stock market should not affect overseas investment products, and pointed out that Korean investors need to bear an additional 30 million won cash threshold, which may weaken their competitive conditions with global investors.
Currently, leveraged ETFs that track multiple stock indices, such as SOXL and KORU, are not subject to this restriction. Regulators believe that since their investment targets diversified indices, the degree of risk diversification is higher than that of single-stock leveraged products. (Daum)
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