High levels of inflows into leveraged exchange-traded funds (ETFs) and borrowing for stock purchases have reignited market concerns that some of Asia’s largest stock markets may repeat last week’s sell-off triggered by the Middle East conflict.
Data shows that leveraged ETFs in Asia have seen net inflows in both the past week and the past month. Data as of the end of last week also showed that margin trading balances in Taiwan and South Korea were near multi-decade highs, while Japan’s figure hit a record high.
The continued strong demand for leveraged bets suggests that a significant amount of bubble money remains in the market. Some bargain hunters are hoping to maximize potential gains if the Middle East conflict ends soon. Given that Asian markets significantly underperformed US stocks last week, these markets will be particularly vulnerable if the conflict continues and oil prices rise again.
During this period, the NEXT FUNDS Nikkei 225(日経225) Leveraged Index ETF listed in Japan attracted $1.4 billion in inflows, the most in the region. Single-stock leveraged funds also attracted substantial inflows. ETFs listed in Hong Kong, managed by CSOP Asset Management, and tracking SK Hynix and Samsung Electronics have attracted a total of $1.1 billion in inflows.