Inverse ETFs Outpace Leveraged ETFs Amid South Korean Market Plunge

South Korea's stock market experienced a sharp decline for two consecutive days, leading to an unprecedented shift in trading patterns for exchange-traded funds (ETFs) linked to SK Hynix. On May 29, the trading volume of inverse ETFs, which profit from a stock's decline, exceeded that of leveraged ETFs for the first time since their introduction.

The "SOL SK Hynix Futures Single Stock Inverse 2X" ETF saw a daily trading volume of 5.898 trillion won, while the "KODEX SK Hynix Single Stock Leverage" ETF recorded 5.165 trillion won. This marks a significant reversal from May 28, when volumes were nearly equal, and highlights the growing investor sentiment towards betting against the market during periods of rapid downturn.

Analysts suggest that the surge in inverse ETF trading may have exacerbated the market's volatility. This comes despite recent regulatory efforts by financial authorities to reduce the overall volume of single-stock leveraged products, which are known to amplify market swings. The authorities had previously introduced measures, such as increasing the required deposit for leveraged trading, which initially led to a decrease in volumes.

However, the recent market crash has seen both leveraged and inverse ETF trading volumes rebound sharply. The "KODEX SK Hynix Single Stock Leverage" ETF, for instance, saw its daily volume climb back to levels seen earlier in the month, indicating a continued high level of speculative trading activity despite the underlying market risks.

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The explosive trading of single-stock inverse products is also contributing to increased volatility.