‘If you are afraid of investing in individual stocks, buy ETFs.’

Analysts say the KOSPI crossing above 7000 on the 6th was supported by steady buying by retail investors and a concentration of funds into exchange-traded funds (ETFs) that bundle multiple stocks. When foreign investors sold Korean equities en masse early this year, individuals bought the shares and helped defend the index, and the hundreds of trillions of won that flowed into ETFs, which have taken root as an investment vehicle, acted as the fuel for the KOSPI’s rise.

According to Korea Exchange statistics, retail investors made net purchases totaling 16.8853 trillion won in the KOSPI market from the start of the year through the 6th. Notably, when war tensions between the United States and Iran intensified and actual conflict broke out in February-March, foreigners exited in large numbers, while individuals continued buying and defended the index.

Individuals made net purchases of 4.035 trillion won in February alone, followed by a hefty 33.5689 trillion won in March. In the span of one month, the volume of net buying by individuals increased by more than eightfold.

By contrast, foreign investors were net buyers of 118.5 billion won in January, but turned net sellers to the tune of 21.0731 trillion won in February and 35.8806 trillion won in March. Over the past month, however, they sent a signal of return by making net purchases of 4.8424 trillion won in the KOSPI market. On the day as well, individuals and institutions were net sellers, but foreigners instead were net buyers of 3.1348 trillion won, pushing the KOSPI up to the 7300 level. That said, on a year-to-date basis, the cumulative net selling by foreign investors amounts to 52 trillion won.

Indirect investment via ETFs is cited as another key pillar driving the KOSPI higher. ETFs can be traded as easily as stocks but tend to track indices rather than individual names, making them more stable than single-stock investments. The menu of options has also broadened, from products that track the KOSPI index to baskets of semiconductor stocks and separate baskets of shipbuilding and defense stocks. When a particular theme was seen rising, retail money tended to pour into ETF products.

ETF assets under management (AUM) surpassed 300 trillion won early this year and swelled by 100 trillion won in just three months, topping 400 trillion won last month. As of the 30th of last month, they stood at 429 trillion won, with 450 trillion won in sight. From 52 trillion won at the end of 2020, ETF assets have expanded to roughly nine times that level in a little over five years.

Average daily ETF trading value has also grown to about 17.5 trillion won this year, more than triple the 5.5 trillion won recorded last year. The share of average daily trading value accounted for by ETFs on the KOSPI has expanded from 44% last year to about 60% this year.

There are also warnings that the rapid expansion of the ETF market could amplify stock market volatility. When leveraged ETFs that deliver twice the return of single stocks such as Samsung Electronics and SK Hynix are launched on the 22nd, fund inflows could lift the index significantly, but conversely, declines could intensify in times of stress.

Park Woo-yeol, an analyst at Shinhan Investment & Securities, said, “With ETF flows concentrating on semiconductor strength, the potential for crowding arising from this is higher,” adding, “If single-stock leveraged ETFs are added on top, concentration of flows into certain names and the derivatives market could increase further.”