An onerous mock trading course is becoming an effective tool for South Korea to cool investor fervor over risky products that have turned the country’s US$4.3 trillion stock market extremely volatile.
Leveraged exchange-traded funds (ETFs) targeting twice the daily returns of chipmakers Samsung Electronics Co and SK Hynix Inc have seen their trading value collapse to 4 percent of its June peak and are set for their first monthly outflow.
Key to sapping demand has been a series of regulatory tightening moves, most recently a rule to complete five-day simulated trading. Investors must download a Windows-only program on PCs and spend at least one hour a day learning the ropes — and the risks — of leveraged trading with virtual cash.
Photo: AP
Interviews with several South Korean retail investors suggested that the requirement, effective on Aug. 19, is too cumbersome to meet.
Gyeonggi Province resident Kim Jung-hoon said his first reaction to the mandatory mock trading was that he would not attempt it, as it was “too much of a hassle.”
“The hours sound long and you can only download the program on PCs,” Kim said. “My work computer can’t download external programs. It doesn’t sound easy to bring an extra laptop with me to work.”
The exercises add to a slew of regulatory curbs since last month to deter investors from trading the leveraged ETFs tied to Samsung and SK Hynix. Earlier measures included a higher minimum deposit.
The system gives investors a virtual cash deposit of 100 million won (US$72,560), offering a first-hand lesson on the perils of trading risky instruments. It lets them witness the so-called “volatility decay” — how returns can erode over time for leveraged products.
Another retail investor, Lee, who asked to be identified by his surname only, said he satisfied all the other prerequisites including the 30 million won minimum cash deposit, but stumbled over the mock trading course.
“You have to download a program and there were minimum time requirements,” Lee said, adding that he also had to create a new membership account. “So I didn’t proceed. I just turned off there.”
The single-stock ETFs tied to Samsung Electronics and SK Hynix have seen combined outflows of about US$1 billion so far this month, poised to experience their first monthly fund exodus, Bloomberg Intelligence data showed.
The ETFs’ combined assets under management shrank to US$5 billion as of Thursday, down from US$11.4 billion at their peak in late June.
While the rapid contraction in trading might frustrate investors hoping to cash out at higher levels, it has helped stabilize the market. The KOSPI’s volatility gauge has slid to a four month low of about 50, down from a peak of 97 in late June. The stock benchmark is up 61 percent so far this year, but remains 25 percent below its record high reached two months ago.
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