Odaily Planet Daily reports that after South Korea’s financial regulator raised the investment threshold for leveraged products on individual stocks, Korean retail investors ("West Learning Ants") have begun adjusting their overseas portfolios by reducing holdings in high-leverage products and shifting toward direct purchases of U.S. equities.
According to data from the Korea Securities Depository on the 5th, since the minimum cash margin for single-stock leveraged products was raised to 30 million KRW on August 1, there has been a noticeable outflow of funds from the 2x leveraged Tesla product, TSLL. Korean investors net purchased approximately $14.58 million in TSLL on the 3rd, but purchases dropped sharply to $1.56 million on the 4th, while sales rose to $8.68 million, resulting in a net sale of $7.11 million that day.
In comparison, enthusiasm for buying Tesla's common stock has significantly increased. Korean investors net purchased approximately $42.3 million worth of Tesla stock from the 3rd to the 4th, more than five times the net buying volume of TSLL during the same period.
A similar trend has emerged among semiconductor individual stocks. Korean investors have shifted from selling leveraged products on Micron and SanDisk to buying the underlying stocks. Specifically, Micron’s 2x leveraged product switched from a net inflow of $10.81 million on the 3rd to a net outflow of $15.98 million on the 4th; both 2x leveraged products for SanDisk shifted from a net inflow of $17.74 million to a net outflow of $33.74 million. During the same period, the underlying stocks of Micron and SanDisk received net inflows of approximately $148 million and $145 million, respectively.
Prior to this, South Korea’s financial regulator announced that, effective July 31, the minimum margin requirement for single-stock leveraged products, both domestic and foreign, will be raised from KRW 10 million, including pledged securities, to KRW 30 million in cash only. Existing investors must also meet the new standard when making additional purchases.
The new rule allows investors to sell their existing leveraged products, but they will not be able to make additional purchases if they lack sufficient cash margin. Regulators stated that implementing this policy early aims to reduce market risk and prevent capital from shifting to overseas leveraged products on single stocks such as Tesla and NVIDIA after limiting Korean leveraged products.
South Korean regulators believe that single-stock leveraged products pose concentration risks and structural risks due to daily yield reset mechanisms that can lead to accumulated losses, regardless of where they are listed.
However, some investors have expressed opposition, arguing that Korea’s stock market volatility should not affect overseas investment products, and noted that requiring Korean investors to meet an additional 30 million KRW cash threshold may undermine their competitive position relative to global investors.
Currently, leveraged ETFs that track multi-stock indices, such as SOXL and KORU, are not subject to this restriction, as regulators believe that their diversified index underlying assets pose lower risk compared to leveraged products tied to single stocks. (Daum)