Investors who had been buying the dip in exchange-traded funds tracking major U.S. indexes are rapidly shifting into cash-like and short-term rate products, after the war in the Middle East sent international oil prices surging and the 10-year U.S. Treasury yield above 5%. Money is also flowing into inverse ETFs, moving the center of gravity in the ETF market from bargain hunting to parking cash and hedging against declines.
Over the past month, from Aug. 14 to Sept. 16, the largest net inflow went to TIGER U.S. S&P 500, which took in 759 billion won, according to Koscom's ETF CHECK on the 16th. TIGER U.S. Nasdaq 100 ranked third with 518.7 billion won and KODEX U.S. S&P 500 ranked fourth with 479.5 billion won, bringing combined inflows into the three U.S. index ETFs to 1.7572 trillion won. The three funds fell 6.51%, 7.24% and 6.48%, respectively, over the same period, suggesting strong demand to use the price correction as a buying opportunity.
The picture changes sharply when the window narrows to the past week, from Sept. 9 to Sept. 16. Six of the seven funds with the largest net inflows were either cash-like and short-term rate products, such as money market and certificate of deposit rate ETFs, or inverse ETFs. Money market ETFs are parking products that invest in short-maturity instruments including ultra-short-term bonds, commercial paper and electronic short-term notes to pursue relatively stable interest income. CD rate ETFs track certificate of deposit rates and are used to manage idle cash over short periods. The remaining fund was a high-grade bond ETF. The ETFs betting on gains in U.S. and Korean stock indexes, which topped the one-month rankings, disappeared from the top of the weekly inflow list.
The largest net inflow was KODEX Money Market Active, which took in 691.8 billion won over the week. KODEX CD Rate Active (Synthetic) drew 299.9 billion won, RISE Money Market Active 195.2 billion won and TIGER CD 1-Year Rate Active (Synthetic) 163.7 billion won. The four cash-like and short-term rate ETFs together attracted 1.3506 trillion won. The figures suggest a buildup of idle money waiting for an entry point while earning short-term interest, rather than moving directly into stocks.
KODEX Money Market Active drew 691.8 billion won in the past week alone, compared with 572.5 billion won over the past month. Demand to prepare for further price declines also grew. KODEX 200 Futures Inverse 2X took in 224.9 billion won and KODEX Inverse 184.3 billion won.
The recent defensive shift in flows coincides with changes in market conditions, including the surge in international oil prices and the rise in U.S. Treasury yields. Concerns over crude supply have mounted after an attack on Saudi Arabia's east-west pipeline and the suspension of crude loadings at the Red Sea port of Yanbu, pushing both West Texas Intermediate and Brent above $105. As higher oil prices fueled inflation concerns, the 10-year U.S. Treasury yield rose as high as 5.041% intraday, the highest in about 19 years since 2007.
"The biggest uncertainty now is not a recession but the war and oil prices, and if geopolitical tensions ease, there is room for oil prices and market rates to stabilize together," said Lee Chae-won, an analyst at Yuanta Securities Korea.
