Koreans as Major Investors in Overseas Stocks... Double-Digit Holdings in US Quantum Computing Stocks

Korean Investors' Craze... Diversifying Investment Destinations

Buying Spree in Rapidly Rising US Small and Mid-Cap Stocks

IonQ Investment of $2.5 Billion... 30% of Market Cap

16% Holding in Rigetti Computing

Prominence in High-Risk ETF Market

Focused Buying on Double or Triple Returns

16% Holding in Cryptocurrency Ripple

Impact of Domestic Stock Market Leverage Regulations

"Urgent Need for Safety Measures in Overseas Direct Investment"

Koreans as Major Investors in Overseas Stocks... Double-Digit Holdings in US Quantum Computing Stocks

With the craze for Korean investors in overseas stocks diversifying their investment destinations, Korean individual investors are emerging as major players in key overseas stocks. The proportion of Korean holdings in US quantum computing-related stocks, which surged more than threefold last year, reached double digits. However, it is pointed out that caution is needed as the stocks mainly held by Korean investors are small and mid-cap stocks with volatile short-term prices and leveraged ETFs.

◇IonQ, Korean Investors Hold 30% Stake

According to the Korea Securities Depository on the 5th, as of the end of last month, the amount held by domestic investors in IonQ was $2.5431 billion (about 3.7403 trillion won). This accounts for approximately 29.7% of its market capitalization of $8.545 billion. IonQ is a quantum computing development company founded by Korean-American Professor Jungsang Kim of Duke University. It is known that Koreans have been steadily buying since its listing on the New York Stock Exchange in 2021. Quantum computing is considered a new leading industry, and its stock price rose by 237% last year alone.

Korean investors, sensitive to trends, are rapidly increasing their proportion in rapidly rising US small and mid-cap stocks. Another quantum computing company, Rigetti Computing, has domestic investor holdings of $512.14 million. The Korean holding proportion is recorded at 16%. This stock's price jumped more than fifteenfold last year. The Korean holding proportion in NuScale Power, a small modular reactor (SMR) related stock, is 8.5%. Last year's return was 445%. This is the background for the emergence of many 'sudden rich' Koreans.

◇Focused Buying on 'Double or Triple' ETFs

Koreans as Major Investors in Overseas Stocks... Double-Digit Holdings in US Quantum Computing Stocks

Korean investors are also prominent in the high-risk ETF market, which tracks double or triple the returns compared to the price fluctuations of individual stocks. Domestic investors' holdings in the 'Direxion Daily TSLA Bull 2X ETF' (TSLL), which tracks twice the daily returns of Tesla, amount to $2.12481 billion. This is about 41.1% of TSLL's market cap of $5.1638 billion.

Domestic holdings in the 'Direxion Semiconductor Bull 3X ETF' (SOXL), which reflects three times the daily returns of the ICE Semiconductor Index, amount to $1.85783 billion. The Korean holding proportion is 19%. The holding proportion in the 'Direxion Daily 20+ Year Treasury Bull 3X ETF' (TMF), which tracks three times the returns of US long-term treasury yields, is also 18.9%. However, the returns on this product are not very good. US treasury yields jumped, dropping 38% last year alone.

In the cryptocurrency-related market, domestic investors are also establishing themselves as major players. Ripple, known as the most beloved cryptocurrency by Koreans, surged 238% last year alone. According to the Financial Intelligence Unit (FIU), as of the first half of last year, Ripple's market cap in domestic won exchanges was 5.88 trillion won, accounting for about 16% of the total Ripple market cap. Domestic investors' holdings in the '2X Bitcoin Strategy ETF' (BITX), which tracks twice the returns of the Bitcoin futures index, also amount to $726.19 million, with a holding proportion of 21% of the total market cap. It is interpreted that domestic investors are moving to overseas markets while the listing of Bitcoin spot and futures-related ETFs is banned in the Korean stock market.

The primary reason domestic investors have become major players in overseas leveraged ETFs is the ban on listing high-risk ETFs domestically. In the domestic stock market, products such as triple leverage/inverse and double leverage for single stocks cannot be listed. This is due to regulatory restrictions that prevent a single stock's proportion from exceeding 30%. Additionally, domestic leveraged ETFs have entry barriers such as a basic deposit of 10 million won and pre-training by the Korea Financial Investment Association, but there are no such regulations for overseas ETFs.

Experts emphasize that investor protection measures for high-risk ETFs are urgently needed. As overseas direct investment in high-risk ETFs is rapidly increasing, safety measures need to be prepared. An industry insider stated, "The accessibility to buy overseas stocks has improved to the point where they can be purchased as easily as domestic stocks, but investor protection measures for overseas investments are insufficient," and pointed out, "Korean investors' focus on small and mid-cap stocks can also lead to large short-term price fluctuations, so caution is needed."

Reporter Maeng Jin-kyu maeng@hankyung.com