Korean stock market hits multiple circuit breakers, retail investors pour into leveraged ETFs—Is stock trading more profitable than crypto trading?

Recently, the Korean stock market experienced historic sell-offs followed by rebounds, triggering multiple circuit breakers. During this turbulence, a large number of retail investors in Korea poured funds into leveraged index ETFs, especially the “KORU,” a U.S.-listed triple-long ETF tracking the Korean stock market. Data shows that in the past, Korean retail investors were major players in the global cryptocurrency market, but recently, the crypto market has entered consolidation, and current crypto asset trends no longer satisfy the high-risk appetite of local retail investors. Meanwhile, the strong rebound of Korea’s semiconductor industry chain and the intense stock market volatility have provided the high-volatility environment that retail investors crave.

Korean stock market swings, funds flow into leveraged ETFs

Last week, the Korean stock market experienced two days of 18% declines, followed by the largest single-day rally in nearly 20 years. Amid this sharp volatility, retail funds flooded into U.S. triple-leverage ETFs. According to Bloomberg Market data, as of March 6, ETF inflows tracking Korean stocks surged to $21.5 billion, with leveraged products accounting for as much as 20%. Looking at KORU (Direxion MSCI Daily 3x South Korea ETF), weekly inflows reached $520 million, with a record $190 million on a single day. These figures indicate that investors are trying to capitalize on high volatility to achieve excess returns, mainly betting on a rebound in semiconductor giants like Samsung and SK Hynix.

Korean retail investors shift from crypto to stocks

In the past, Korean retail investors were major players in the global cryptocurrency market, but recently, the crypto market has entered consolidation, lacking new narrative momentum and with significantly reduced volatility. Current crypto asset trends no longer satisfy the high-risk appetite of local retail investors. Meanwhile, the strong rebound of Korea’s semiconductor industry chain and the intense stock market turbulence have created the high-volatility environment retail investors desire.

Over the past year, the KOSPI index in South Korea has risen 111%, while the 3x leveraged KORU surged by 726%. In contrast, Bitcoin has fallen nearly 20% during the same period.

(Korean stock market surges, crypto market in chaos? Retail funds completing the biggest “reverse migration” in a decade)

Regulatory policies and macroeconomic impacts

A large amount of retail funds in Korea are being transferred abroad to purchase U.S.-listed ETFs, which may increase the downward pressure on the Korean won exchange rate. The subsequent leveraged liquidations could also amplify volatility in the Korean domestic stock market. To mitigate potential financial risks, Korean regulators have taken preventive measures. Currently, leverage products on individual stocks are strictly prohibited domestically, and the leverage limit for index funds is set at two times. Additionally, authorities require brokerages to strengthen warnings about overseas market and exchange rate risks and to conduct mandatory online training for citizens interested in investing in overseas leveraged ETFs.

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