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Investors eye leveraged, inverse ETFs amid high market volatility

Investors are flocking to high-risk leveraged and inverse exchange-traded funds in South Korea, resulting in an increase in the daily average trading volume.

According to the stock market operator Korea Exchange, the combined daily average trading volume of leveraged and inverse ETFs from July 26 to Thursday amounted to nearly 1.3 trillion won ($1.1 billion). It is 81.3 percent higher compared to the corresponding figure of 701.7 billion won in June. 


A leveraged ETF uses financial derivatives and debt to amplify the returns of an underlying index, while an inverse ETF uses various derivatives to profit from a decline in the value of an underlying benchmark.

Both are deemed as high-risk and high-cost investments, and aim to deliver a magnified return when the market is failing.

Inverse ETFs have been the more popular option of the two securities, with its average trading volume amounting to 708.8 billion won from July 30 to Thursday, while the volume for leveraged ETFs came in at 563.5 billion won.

On Tuesday, when the benchmark Kospi dipped below the 1900-level and the secondary Kosdaq shed 3.2 percent, inverse ETFs worth 1.2 trillion won were traded during the day. The figure marked the highest since Nov. 9, 2016, when the corresponding volume reached 1.3 trillion won.

From July 30 to Thursday, Kodex Kosdaq 150 futures inverse was the most traded ETF with its daily average trading volume amounting to 319.5 billion won.

The Korean stock market has been struggling to deal with mounting pressures from the escalating US-China trade war, and Tokyo’s decision to remove Seoul from its whitelist of trusted trading partners, in recent weeks.

The local share market recovered slightly on Friday, buoyed by the Korean government’s announcement a day earlier that Japan has approved the exports of one of the three materials it initially placed restrictions on.

By Jung Min-kyung (