Foreign leveraged ETF investors in Korea suffer massive losses in bear market

South Korean retail investors that have rushed to bet big on offshore leveraged exchange-traded funds (ETF) to offset the tepid local stock market are facing swelling losses from their bold investments after their favorite U.S. and China stocks have been recently bombarded with unfazed inflation concern.

According to data from Seibro, a securities platform operated by Korea Securities Depository, on Sunday, domestic individual investors invested total $1.7 billion in ProShares Ultra QQQ (TQQQ), an ETF seeking triple returns on the daily performance of the Nasdaq-100 Index, so far this year, beating their total investment in their long-time favorite foreign stock Tesla. However, TQQQ lost 61.97 percent over the same period due to the recent plunge in the Nasdaq amid growing uncertainty over the fast rising inflation.

Korean mom and pop investors also bought $1.3 billion of the Direxion Daily Semiconductor Bull (SOXL) this year, seeking triple returns on the daily results of the Philadelphia semiconductor index, but the SOXL ETF suffered a 66.93 percent plunge over the same period.

Returns from ETFs tracking major indexes, mostly favored by investors pursuing long-term profit, have also performed poorly. The SPDR S&P 500 ETF, seeking yields on the S&P performance, retreated 15.42 percent.

Scores on Korean investors¡¯ bet on ETFs tracing Chinese stocks and indices are also low as the world¡¯s second largest economy has been grappling with city lockdowns imposed to contain the spread of Omicron variant across the country under the state¡¯s strict zero-Covid policy since late last year.

So far this year, Korean retail investors bought $72 million of the Hang Seng China Enterprise Index ETF but the ETF plummeted 17.50 percent from the beginning of this year. Koreans who have purchased $54 million worth of the leveraged Direxion Daily CSI China Internet Index Bull 2X ETF bore the brunt of a loss of 59.60 percent so far this year.

Despite such massive losses, domestic individuals continued to buy the dip in U.S. stocks. They together bought $3 billion worth of U.S. stocks in April alone, with $63 million in TQQQ and $28 million in SOXL, raising concerns that Korean mom and pop investors may suffer more losses onwards amid lack of proper protection for their investments in offshore stocks.

Market experts call on the industry and government to come up with regulatory measures to protect them.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]