This step has finally prompted most Korean retail investors to give up on leveraged ETFs

South Korea’s retail investors, which created a frenzy earlier this year through their use of leveraged ETFs in propping the stock market higher and then trigger a meltdown in July, have finally given up on using these products. The reason? Too much effort.

A mock trading course introduced by regulators has resulted in the enthusiasm over these products to make a profit cool down. These leveraged ETFs, predominantly linked to two stocks, Samsung Electronics and SK Hynix, which led the market higher, target twice or thrice the daily return of the underlying asset.

Such has been the exodus of retail investors that the trading value of these ETFs has collapsed to just 4% of its peak in June. In fact, these ETFs are also set for their first ever monthly outflow in August.

According to Bloomberg, the single-stock ETFs tied to these stocks have already seen outflows of over $1 billion in August combined. The combined Assets Under Management (AUM) of these products has shrunk to $5 billion as of August 27, down from their late-June peak of $11.4 billion.

Korean regulators recently introduced a mandatory five-day course, which involved simulated trading. As part of the same, investors must download a Windows-only program on their Computers, and spend at least an hour a day, to learn the tricks and the risks associated with trading in leveraged ETFs. Investors were also provided virtual cash to trade and understand these products.

Several South Korean retail investors have cited that these new requirements are very “cumbersome” to meet, calling it “too much of a hassle”, while some of them have called the “Personal Computers-only” requirement too demanding.

The move adds to the several regulatory steps taken to curb volatility in the South Korean markets, including raising the minimum cash deposit requirement from 10 million to 30 million won. Some investors were even ready to furnish the cash, but said that the mock trading and the mandatory hours required to finish the course is too much to ask.

While the Korean Exchange has refused to divulge the number of people who have downloaded the program or have tried the mock trading system since its launch, it affirmed that it has no plans to introduce a mobile-based system for this.

South Korea’s KOSPI is still up over 60% this year, but down over 25% from its peak of over 9,000 that it had surged to in June before the meltdown began. As a result of these restrictions, the volatility gauge on the benchmark index has slumped to a four-month low of 50, from the late-June peak levels of 97.

(With Inputs From Agencies)