Korean investors shift focus to inverse ETFs as battery stocks dip

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As South Korea’s secondary battery-related stocks experience recent declines after sparking a theme stock frenzy earlier in 2023, individual investors are changing their investment strategies and opting for the sector’s inverse exchange-traded funds (ETFs).

According to sources on Wednesday, individual net purchases of KB Asset Management’s “KBSTAR Secondary Battery TOP10 Inverse” ETF, which was listed on Monday, amounted to 24.94 billion won ($18.8 million).

Inverse ETFs are structured to generate profits when the tracked index or stock prices fall. The “iSelect Secondary Battery TOP10 Index” is followed at a -1x ratio by this ETF and the index portfolio includes ten companies, such as POSCO Holdings, LG Energy Solution, Samsung SDI, EcoPro, and EcoPro BM.

In contrast, individual net purchases of the “KBSTAR Secondary Battery TOP10” ETF listed on the same day amounted to a mere 345 million won, significantly less than the amount invested in the ETF anticipating price increases. Investors put over 70 times more money into the inverse ETF, which anticipates declines.

The total trading volume for the “KBSTAR Secondary Battery TOP10 Inverse” ETF also hit 69.35 billion won, seven times that for the “KBSTAR Secondary Battery TOP10” ETF.

Battery-related stocks had been on an upward trajectory since the beginning of this year but are currently declining overall thanks to volatility and sharp fluctuations in July due to speculative trading.

EcoPro saw a continuous sell-off by individual investors for six consecutive trading days from August 24 to 31, totaling 641.1 billion won in sales, and an additional 39 billion won was sold off on Tuesday. This resulted in a 26.01 percent fall in EcoPro’s value this month alone, causing it to lose its top spot for a 1 million won price in the market. EcoPro BM (-14.48 percent), LG Energy Solution (-8.18 percent), POSCO Holdings (-5.70 percent), and Samsung SDI (-9.12 percent) also experienced declines.

Experts predict that the correction in secondary battery-related stocks will continue in the short term. However, they also believe that a buy strategy will remain effective in the long term.

“Our expectations are that declining prices of cathode materials and batteries will lead to lower electric vehicle (EV) prices next year, making EV demand more favorable than this year,” NH Investment & Securities analyst Ju Min-woo said. “Lithium prices are expected to stabilize downward starting from the fourth quarter, and the announcement of new orders and expansions by secondary battery material and battery companies at the end of the year could contribute to stock price rebounds.”

“We maintain our view on ‘overweight’ in the secondary battery industry,” said Shinhan Investment analyst Jung Yong-jin said, recommending companies with a high exposure to Tesla, which continues to perform well despite a challenging sales environment, as well as firms rapidly expanding low-cost products for EV original equipment manufacturers.