[News Today] Looming risks of ETF investor spike

[LEAD]

The KOSPI has surged past the 6,700 mark and is now approaching 7,000. Much of the rally is being driven by the rapid growth of exchange-traded funds, now worth around 400 trillion won.

Funds are pouring into ETFs as a relatively stable investment option.

But there are also warnings that ETFs themselves could amplify sharp swings in the market.

[REPORT]

This woman in her 30s terminated her savings account of KRW 30 million or more than USD 20 thousand early this year and invested in an ETF.

Kim Min-jung / ETF investor

The stock market is rallying, and everyone seems to be making money. Indices are rising, so I decided to invest, hoping it’s stable.

Exchange traded funds diversify risks by combining various stocks, like a basket of many different fruits.

In Korea, ETF net assets stood at KRW 300 trillion or over USD 203 billion in January, but in just three months they have surged by another KRW 100 trillion.

Nearly half of the daily stock market trading value now comes from ETF funds.

Semiconductor stocks rule the scene when it comes to ETFs.

Over the past year, one out of every three new ETFs included both Samsung Electronics and SK Hynix.

About 20% of all ETFs include at least one of these two companies.

But when their share prices fluctuate, things can get tricky.

ETFs that operate based on pre-set rules automatically order selling.

This can accelerate the price plunge of those stocks and increase downward pressure on the overall index.

Cho Byung-hyun / DAOL Investment and Securities

If conditions get worse, selling pressure could accelerate, contributing to market volatility.

Following deregulation by the government, ETFs containing just a single stock will be introduced to the market next month, which will likely further intensify investor preference for Samsung Electronics and SK Hynix stocks.