Korean individual investors making risky investments for ultra-high returns

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Korean individual investors are increasing risky investments in pursuit of ultra-high returns, investing trillions of won in triple leveraged and inverse products listed in the U.S. in a short period of time.

Furthermore, some investors purchased tens of billions of won worth of stocks of U.S regional banks on the verge of bankruptcy. Stock market experts have warned that it is dangerous to pursue short-term profits with limited information, but the enthusiasm for ultra-high-risk investments is not cooling down.

According to the Korea Securities Depository on Sunday, individual investors net purchased more than 1 trillion won ($746 million) in six triple-leveraged and inverse exchange-traded funds (ETFs) listed on the U.S. stock market this year. They flocked to ETFs that seek to return three times the return of assets they track, such as semiconductors, government bonds and natural gas, along with short products on the NASDAQ-100 Index known as SQQQ.

Since the Silicon Valley Bank crisis in March, individual investors have net purchased SVB and First Republic Bank Corp. stocks worth about 140 billion won. They also invested 21 billion won in 3 times leveraged ETFs of regional banks. As the collapse of SVB and Signature Bank raised the possibility of a bank run at FRC, prompting regional bank stocks to plunge, investors flocked to buy Direxion Daily Regional Banks Bull 3X Shares ETF (DPST ETF) at lower prices on expectations of a rebound.

“Investors seem to be making purchases of low-priced bank shares on vague expectations that banks will not go bankrupt,” said an official from the financial investment industry. “Unlike Korea, however, the U.S. often protects only depositors and makes shareholders accountable for bankruptcy.”

The same is happening in the Korean market. Eight stocks, including shares of Samchully Co. and Harim Holdings Co., which plunged by their daily limit last week, have each attracted tens of billions of won. This means that many investors are willing to invest in risky stocks for higher returns.

The problem is that this type of ultra-high-risk investment tends to lead to losses rather than profits. Stock prices of insolvent SVB and FRC tumbled 99 percent and 97 percent, respectively. The DPST ETF also fell 69 percent in March and about 11 percent this month.