South Korean retail investors shift to direct stock purchases amid leverage product restrictions

ME News reports that, on August 5 (UTC+8), following Korea’s financial regulator’s increase in margin requirements for single-stock leveraged products, Korean retail investors (“Si Hak Ma”) have begun adjusting their overseas portfolios by reducing positions in high-leverage instruments and shifting toward direct purchases of U.S. equities. According to data from the Korea Securities Depository on August 5, after the minimum cash margin requirement for single-stock leveraged products was raised to KRW 30 million starting August 1, significant outflows were observed in the 2x leveraged Tesla product, TSLL. On August 3, Korean investors still net purchased approximately $14.58 million worth of TSLL; however, by August 4, purchases plummeted to $1.56 million while sales surged to $8.68 million, resulting in a net outflow of $7.11 million that day. In contrast, demand for Tesla’s underlying stock strengthened markedly. Between August 3 and 4, Korean investors net purchased approximately $42.3 million in Tesla shares—more than five times the net inflow into TSLL during the same period. A similar trend emerged in semiconductor stocks. Korean investors sold leveraged products of Micron and SanDisk while shifting to their underlying equities. The 2x leveraged Micron product shifted from a net purchase of $10.81 million on August 3 to a net sale of $15.98 million on August 4; both 2x leveraged SanDisk products reversed from a combined net purchase of $17.74 million to a net sale of $33.74 million. During the same period, Micron and SanDisk underlying stocks received net inflows of approximately $148 million and $145 million, respectively. Prior to this, Korea’s financial regulator announced that, effective July 31, the minimum margin requirement for single-stock leveraged products—both domestic and foreign—was raised from KRW 10 million (including collateral securities) to KRW 30 million in cash only. Existing investors must also meet this new standard when adding to their positions. The new rule permits investors to sell existing leveraged positions but prohibits additional purchases unless sufficient cash margin is maintained. The regulator stated that the early implementation aims to reduce market risk and prevent capital from migrating to overseas single-stock leveraged products such as Tesla and NVIDIA after domestic leverage products were restricted. The regulator argues that single-stock leveraged products pose concentrated capital risks and structural risks from daily yield reset mechanisms that accumulate losses—risks that remain identical regardless of listing location. However, some investors have voiced opposition, arguing that Korea’s domestic market volatility should not affect overseas investment products and that the KRW 30 million cash margin requirement may disadvantage Korean investors relative to their global peers. Currently, leveraged ETFs tracking multi-stock indices—such as SOXL and KORU—are not subject to these restrictions, as regulators consider diversified index exposure to carry lower risk than single-stock leveraged products. (Source: ODAILY)