"KoAct KOSDAQ Active," Korea's first KOSDAQ active ETF, once ranked Curiant as the number one in proportion. However, the current share is only 37th.
The stock price distortion caused by the rapid growth of ETFs is emerging as a new task for the Korean stock market. This is the so-called "wag the dog" problem in which the tail wags its body. It is pointed out that ETFs, which were symbols of diversified investment, rather disturbed individual small and medium-sized stocks and became a catalyst for market concentration and speculative trading.
According to the financial investment industry on the 28th, the size of operations of domestic listed ETFs recorded 502 trillion won on the 26th, surging 69% this year. This number is even ahead of the KOSDAQ market capitalization of 479 trillion won on the 26th.
Half of all ETFs in Korea are domestic stock products. Their shares account for 3.3% of the market capitalization of the domestic stock market. The share of ETF shares out of the total market capitalization has nearly quadrupled in 10 years from 0.9% in 2016.
On top of that, ETFs' influence in real stock trading is nearly twice as large as their share. This is because the ratio of current stocks, which is the volume that can be traded in the actual market, is usually 50-60%.
Short hit and speculative trading through ETFs, along with frequent adjustments in the Middle East war and bull markets, is a factor that has increased volatility in the KOSPI this year.
The standard deviation of the daily fluctuation rate of KOSPI this year is 3.6%, which is 4.5 times higher than that of 2016 (0.8%). The high standard deviation of the fluctuation rate means that the stock price has plunged sharply. ETF share and KOSPI volatility rose similarly. The standard deviation of the KOSPI fluctuation rate this year is even higher than that of 2008 (2.4%) when the global financial crisis occurred.
Frequent changes in hands and speculation of leveraged products by local ETF investors are further increasing stock market volatility. The average daily transaction value of domestic listed ETFs this year is 23 trillion won, which is half of the total domestic stock market (without ETFs, 50 trillion won). Considering that the domestic ETF market is about 7% of the market capitalization of the domestic stock market, the turnover rate is very high. This is the impact of leverage and thematic ETF single-handed trading.
The domestic ETF market is characterized by multiple management companies rushing to release products when a theme emerges. KOSDAQ and bio products poured out in March, and space products came out one after another in April. Recently, semiconductor ETFs that have grown the proportion of "Samjeonics" have appeared one after another.
As managers are only thinking about competing for market share according to popular themes, supply and demand are distorted, leading to a sharp decline in the stock market.
In particular, semiconductor ETFs are so large that they control the direction of individual stock prices. In addition, materials, parts, and equipment (small manager) stocks that have jumped on the popularity of Samsung Electronics have weakened their price discovery function very much.
According to Mirae Asset Securities Research Center, the balance of domestic ETF holdings accounted for 37% of the current market capitalization of Korea-US semiconductors at the end of last month. This is a four-fold increase from 9% two years ago. During the same period, Reno Industrial also saw its share of ETF holdings in current market capitalization increase from 12% to 34%, while DB Hi-Tech increased from 8% to 32%.
This is in contrast to the increase in the proportion of the ETF holdings of Samsung Electronics and SK Hynix to 4% from 2% to 3% during this period.
Investment decisions have become more frequent by referring to the supply and demand of ETFs, which are "big hands." There is a follow-up sale.
"Not only individual investors but also active fund managers make investment decisions by referring to ETF supply and demand," an official from the asset management industry said. "Securities companies' corporate sales managers also give ETF supply and demand and rebalancing data when providing investment ideas to institutional investors."
Experts warn that research on 'Korean ETF Wack the Dog' is urgent.
Jang Geun-hyeok, a senior researcher at the Korea Capital Market Research Institute, said, "The domestic ETF market expands so fast compared to overseas that it is difficult to apply overseas research as it is.
The "single-stock leverage" released without proper research has become the main culprit of the recent volatility market.
Single-stock leverage is not a product that determines the stock price direction of an underlying asset, but it has a product structure that increases the stock price amplitude by inducing supply and demand concentration. This year, the standard deviation of the daily fluctuation rate of the KOSPI rose from 3.3% before the release of leverage in a single stock to 4.5% after the release.
While financial authorities are also looking for solutions, various measures are discussed in the market.
There are also calls to force down the leverage ratio, which is currently twice as high, to 1.5 times. U.S. asset management company Direcion voluntarily lowered its leverage ratio from three times to two times in 2020 when the market seizure occurred due to COVID-19.
In addition, some say that since the product has already been released, rather than changing the guidelines again, let's watch the market digest the product on its own.
[Reporter Jeong Jaewon]
