So-Called Smart Money Flees Korean Market with 7 Trillion Won, Only to Lose 50 Trillion Won in Two Months

Domestic investors are flocking back to the U.S. stock market.

However, they have reportedly suffered staggering losses approaching 50 trillion won over the past two months.

Pumping massive funds 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 massive 6.7428 trillion won in Korean currency.

It is the largest monthly purchase amount in six months since January of this year.

Looking at the net purchase trends of Seohak ants this year, buying peaked in January before gradually declining in February and March.

Then, as the domestic Kospi index gained upward momentum and the government rolled out stock market support measures, net sellers outnumbered buyers starting in April.

In May, the scale of net selling jumped significantly to $939.77 million.

This trend shifted back to a buying dominance in June, and the volume expanded sharply in July.

As the domestic stock market entered another downturn starting in June, analyses suggest that retail investors are fleeing the local market.

During June and July alone, the money poured into the U.S. market reached $5.3 billion, or approximately 7.6547 trillion won.

The problem is that the estimated paper losses incurred by Seohak ants during this period amount to approximately 50 trillion won.

The custody value of U.S. stocks held by Seohak ants shrank from $204.1 billion at the end of May to $170.4 billion on the 30th of last month.

In just two months, $33.7 billion—about 48.6729 trillion won in Korean currency—has vanished into thin air.

This is a colossal amount equivalent to 16.5% of the evaluation value at the end of May.

During the same period, major U.S. stock indices experienced relatively modest drops, with the S&P 500 falling 1.88% and the Nasdaq index declining 6.85%.

This means investors recorded massive losses that far exceeded the index decline rates.

The fallout from a sharp 29.1% plunge in Tesla shares, the most heavily held stock by retail investors, had a major impact.

Nvidia shares, the second-most held stock, also took a hit by dropping 7.6%.

Above all, aggressive betting on leveraged products is analyzed as the decisive blunder.

The top pick for Seohak ants in June and July was the leveraged exchange-traded fund (ETF) tracking three times the return of the Philadelphia Semiconductor Index, commonly known as "SOXL."

Investors scooped up a staggering $3.77486 billion, worth 5.452 trillion won.

The custody value of SOXL increased only slightly from $5.35326 billion at the end of May 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 during this period, plunging from the $224 range to the $114 range.

Previously, retail investors were also reported to have suffered heavy losses in the domestic leverage market.

Citi 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 forecasted that the total cumulative losses for retail investors resulting from this would reach 56 trillion won.

An official in the securities industry expressed concern regarding retail investors who suffered massive losses both at home and abroad, noting, "The capacity of individuals to prop up the domestic market has diminished to that extent."
※ Please note: This article was translated by AI and may contain errors.