30 Million Won Threshold Takes Effect, South Korean Retail Investors Shift from Leveraged ETFs to Directly Buying US Stocks

Odaily Planet Daily reports that after South Korea's financial regulators raised the investment threshold for single-stock leveraged products, retail investors ("Western-style ants") in South Korea have begun to adjust their overseas investment portfolios, reducing their holdings in high-leverage products and shifting towards directly purchasing US stocks.

Data from the Korea Securities Depository on the 5th shows that since the minimum cash margin for single-stock leveraged products was raised to 30 million won on August 1, there has been a noticeable outflow of funds from Tesla's 2x leveraged product TSLL. On the 3rd, South Korean investors still net bought about 14.58 million USD of TSLL, but the purchase amount plummeted to 1.56 million USD on the 4th, while the selling amount surged to 8.68 million USD, resulting in a net sell of 7.11 million USD on that day.

In contrast, enthusiasm for buying Tesla's underlying stock has significantly increased. From the 3rd to the 4th, South Korean investors net bought approximately 42.3 million USD of Tesla stock, exceeding the net buying scale of TSLL during the same period by more than five times.

A similar trend is also observed in semiconductor stocks. South Korean investors have sold leveraged products on Mindray and SanDisk, while turning to purchase the underlying stocks. Specifically, the 2x leveraged product of Mindray shifted from a net purchase of 10.81 million USD on the 3rd to a net sell of 15.98 million USD on the 4th; two 2x leveraged products of SanDisk also changed from a net purchase of 17.74 million USD to a net sell of 33.74 million USD. During the same period, the underlying stocks of Mindray and SanDisk received net inflows of approximately 148 million USD and 145 million USD, respectively.

South Korea's financial regulatory authorities previously announced that starting from July 31, the minimum margin requirement for domestic and foreign single-stock leveraged products would be raised from 10 million won, including collateral securities, to 30 million won in cash only. 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 margin is insufficient, they will not be able to continue making additional purchases. The regulatory authorities stated that the early implementation of this policy aims to reduce market risks and prevent funds from merely shifting to overseas single-stock leveraged products like Tesla and Nvidia after restricting South Korean leveraged products.

The South Korean regulators believe that single-stock leveraged products carry risks of concentrated funds and structural risks of loss accumulation due to daily yield resets, regardless of where they are listed, the inherent risks are the same.

However, some investors have expressed opposition, arguing that the volatility issues in the South Korean stock market should not affect overseas investment products, and pointed out that South Korean investors need to bear an additional cash threshold of 30 million won, which may weaken their competitive conditions with global investors.

Currently, leveraged ETFs tracking multiple stock indices, such as SOXL and KORU, have not been affected by this restriction, as the regulatory authorities believe that their investment targets are diversified indices, which have a higher degree of risk dispersion compared to single-stock leveraged products.