In South Korea’s listed exchange-traded fund (ETF) market this month, foreign and retail investors placed bets in completely opposite directions — and on the returns front, it was the foreigners wagering on index gains who had the last laugh. With the KOSPI 200 climbing more than 5% over the course of a month, leveraged products delivered near double-digit returns, while inverse 2X products that bet on declines suffered losses of close to 13%.
According to data compiled by the Korea Exchange and Koscom CHECK on the 27th, the product foreign investors bought most heavily among South Korea-listed ETFs from the 1st through the 23rd was KODEX Leverage. Net purchases totaled 214.4 billion won (approximately $158.3 million). The product tracks twice the daily movement of the KOSPI 200 index.
Foreign buying extended to semiconductor single-stock leveraged ETFs as well. Over the same period, 157 billion won (approximately $115.9 million) flowed into KODEX SK Hynix Single-Stock Leverage, and 110.4 billion won (approximately $81.5 million) into TIGER SK Hynix Single-Stock Leverage.
Single-stock leveraged ETFs had seen trading activity shrink sharply after South Korea’s financial authorities tightened regulations starting July 31, raising the minimum deposit requirement from 10 million won (approximately $7,400) to 30 million won (approximately $22,000). However, with large-cap semiconductor stocks recently showing a rebound, foreign capital appears to have flowed back in.
Retail investors made the exact opposite choice. Excluding U.S. benchmark index ETFs, the product retail investors net bought most heavily among South Korea-listed ETFs during this period was KODEX 200 Futures Inverse 2X, at 121.7 billion won (approximately $89.9 million). It is a classic inverse 2X product that tracks -2 times the daily return of the KOSPI 200. Retail money also flowed into KODEX Inverse to the tune of 100.5 billion won (approximately $74.2 million).
The divergence between the two investor groups was also evident on the selling side. Retail investors sold off large quantities of the very two products that topped foreign net buying. They net sold 317.5 billion won (approximately $234.4 million) of KODEX Leverage and 222.5 billion won (approximately $164.3 million) of KODEX SK Hynix Single-Stock Leverage. These ranked second and third in retail net selling, behind only KODEX 200 at -410.2 billion won.
Returns overwhelmingly favored those who followed the index direction. Over the same period, KODEX Leverage rose 9.24%, while KODEX 200 Futures Inverse 2X fell 12.99%. The underlying KOSPI 200 gained 5.06%.
By simple arithmetic, the return gap between the two products exceeds 22 percentage points. The 214.4 billion won foreign investors put into the leveraged ETF translated to roughly 19.8 billion won (approximately $14.6 million) in unrealized gains, while the 121.7 billion won retail investors put into the inverse 2X product sat in a loss zone of approximately 15.8 billion won (approximately $11.7 million).
Analysts interpreted these flows as having more to do with short-term trading to navigate a volatile environment than with conviction about market direction.
Lee Sang-hyun, an analyst at DS Investment & Securities, said, “Recent fund flows into both leveraged and inverse products suggest the emphasis is on managing volatility rather than directional bets. This reflects short-term trading demand in a period of sharp swings rather than conviction about index direction.”
Cho Jae-woon, an analyst at Daishin Securities, advised that with volatility still elevated, a diversified strategy is preferable to one-sided bets. “For ETFs, we suggest a focus on semiconductors, AI power infrastructure, and the Nasdaq 100; for bonds and funds of interest, we recommend high-quality credit and asset allocation strategies,” he said.
This supply-demand showdown starkly illustrates the difference in market perception between foreign and retail investors. Foreigners placed weight on a rebound in large-cap stocks led by semiconductors and sought to maximize returns through leverage, while retail investors opted for inverse 2X products as a downside hedge under the assumption that the range-bound market would persist. In the end, this month’s winners were the foreigners who bet on the index rising.
That said, both leveraged and inverse products track daily returns, meaning that for long-term holders, compounding effects can cause returns to diverge significantly from the underlying index. Analysts caution that investors who are not trading on a short-term basis should approach these products with care.