Worried about "bubbles," the "most speculative" South Koreans have started buying "U.S. stock VIX."

As concerns about the valuation bubble in the U.S. stock market intensify, South Korean retail investors, known for their aggressive investing, are turning to complex leveraged VIX products, making large bets on market volatility.

According to data from South Korea's securities custody agency, this year, the 2x long VIX futures ETF has attracted approximately $130 million in inflows from South Korean investors, becoming one of the most favored U.S.-listed ETFs among them, ranking seventh in purchase volume in July. This capital accounts for about one-fifth of the global inflows into this ETF.

Behind this trend are dual motivations. Current U.S. stock valuations are hovering at historical highs, and discussions about a "bubble" are heating up. Some investors are buying VIX-related products to hedge the risks of their large long positions in U.S. stocks. Meanwhile, another group of investors is purely speculating, betting on a market correction.

However, analysts warn that these products carry hidden risks. These complex leveraged volatility products are designed for short-term trading, and holding them long-term typically results in losses.

Dual Risks of Leveraged Products

Professionals believe that the risks of leveraged VIX products far exceed those of ordinary leveraged securities, which South Korean retail investors may not fully understand. Francis Oh, head of Asia business development at Rex Shares LLC, stated that these leveraged VIX ETFs are used by South Korean investors to gain greater profits during panic sell-offs, but they may not understand the technical details and risks of these securities. He said:

"They may think they are buying undervalued assets while providing protection during a significant market crash."

Volatility-related products carry additional risks: they are constructed through futures positions and require continuous rebalancing, a process that typically involves selling low and buying high under normal market conditions. This means that even with short-term gains, long-term holding usually leads to losses. Professional traders are less affected by rollover costs due to their quick entry and exit from positions, but South Korean retail investors may not be able to do this.

Charlie McElligott, managing director of cross-asset macro strategy at Nomura Holdings, emphasized that the inflow of South Korean funds into VIX securities should not be viewed in isolation. These inflows are accompanied by "a large number of long positions," indicating investors' enthusiasm for the U.S. market—especially considering the leveraged ETFs they hold.

Aggressive Choices of "Ant" Investors

South Korean retail traders are locally referred to as "ants," known for their risk-taking. Overseas leveraged or inverse securities are particularly attractive because they currently have no trading restrictions. In contrast, trading local derivatives such as futures and options in South Korea requires completing up to 17 hours of education and simulated trading.

On Kakao Talk, South Korea's most popular chat application, there are about a dozen public groups dedicated to discussing VIX or leveraged products, each with hundreds of users.

According to media reports, a trader using the X account @hell_inflection refused to disclose his identity during an interview, but industry insiders noted that his posts, which have 16,800 followers, helped drive retail trading in this ETF. Despite suffering an 18% loss, he vowed in August to "stick it out." Jung Hyundoo, who previously worked at Hanwha Investment & Securities and later founded an investment research center, explains financial concepts on the program and shares his views with over 35,000 YouTube subscribers. This analyst, known as the "Money Teacher," believes that due to the fierce competition in artificial intelligence and the Federal Reserve's loose policies, the U.S. market will not crash in the short term, and UVIX investors are destined to incur losses. In a recent interview, he said:

"Some enthusiasts are aggressively using leverage for higher returns, and I don't think there will be a massive market crash that could save the UVIX camp in the near future."