Domestic investors are flocking back to the U.S. stock market.
However, they have reportedly suffered massive losses close to 50 trillion won over the past two months.
Pouring huge amounts of capital into high-risk leveraged products appears to have been the root cause.
The Korea Securities Depository announced that South Korean retail investors, known as "Seohak ants," net-purchased $4.66862 billion worth of U.S. stocks last month (July).
This amounts to a staggering 6.7428 trillion won.
It is the largest monthly purchase amount in six months since last January.
Looking at the net-buying trend of retail investors this year, it peaked in January before gradually decreasing in February and March.
Then, as the domestic KOSPI gained upward momentum and the government introduced stock market boost measures, more people became net sellers starting in April.
In May, the net-selling volume jumped significantly to $939.77 million.
This trend shifted back to a buying dominance in June, and the scale expanded sharply in July.
As the domestic stock market turned bearish again from June, analyses suggest that individual investors are escaping the local market.
The money poured into the U.S. market over the two months of June and July alone reaches $5.3 billion, or approximately 7.6547 trillion won.
The problem is that the estimated valuation losses incurred by these retail investors during this period amount to about 50 trillion won.
The value of U.S. stocks held by retail investors, which stood at $204.1 billion as of the end of May, shrank to $170.4 billion by the 30th of last month.
In just two months, $33.7 billion—approximately 48.6729 trillion won—vanished into thin air.
This is a massive figure equivalent to 16.5% of the valuation at the end of May.
During the same period, major U.S. stock indices such as the S&P 500 fell by only 1.88%, while the Nasdaq index dropped 6.85%.
This means they recorded massive losses that far exceeded the index decline rates.
The fallout from the 29.1% plunge in Tesla shares, which retail investors held the most, had a huge impact.
The stock price of NVIDIA, their second-largest holding, also fell by 7.6%, dealing a blow.
Above all, aggressively betting on leveraged products is analyzed as the decisive failure.
The stock most purchased by retail investors in June and July was the Direxion Daily Semiconductor Bull 3X Shares (SOXL), an exchange-traded fund (ETF) tracking three times the return of the Philadelphia Semiconductor Index.
They swept up a whopping $3.77486 billion, worth 5.452 trillion won.
The custody value of SOXL, which was $5.35326 billion at the end of May, increased only slightly to $5.81145 billion.
Considering that they made additional purchases close to $4 billion over the two months, this is a disastrous scorecard.
This is because the price of SOXL literally halved from the $224 range to the $114 range during this period.
Previously, individual investors were known to have suffered heavy losses in the domestic leverage market as well.
Citigroup Global Markets Korea recently stated in a report that the market capitalization of Korean asset-based leveraged ETFs plummeted in just over a month.
It also projected that the total accumulated losses for individual investors resulting from this would reach 56 trillion won.
An official in the securities industry expressed concern regarding individual investors who suffered massive losses across domestic and international markets, stating, "The capacity that has propped up the domestic market has diminished by that much."
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