Tesla’s 40% decline burns Koreans who raked into leveraged ETFs

Tesla has not been doing so well under Trump’s administration. Now, the stocks are 41% down. Korean investors are mostly hurt because they have put a lot of money into the US car company.

Since the announcement of Musk’s involvement in the Trump administration, particularly DOGE, safe to say investors were sure that Tesla and everything that has Musk on it would do well. Unfortunately for investors, it was not so.

Market data from three Korean brokerages have dropped harder. Bloomberg shows that Korean buyers held most of the London-listed Leverage Shares 3x Tesla exchange-traded product. The product, which aims to give three times the daily return of Tesla shares, has dropped more than 80% since its December high point. 

Koreans also invested in the American exchange-traded fund, which was looking for a two-times daily gain on Tesla. However, it has lost almost 70% of its value since its high point on December 17. 

According to statistics from the depository, Korean investors had $1.5 billion in the fund as of Wednesday. This was 43% of the fund’s total assets.

Concerns about leveraged ETPs

Koreans are heavy investors. Unlike other nations, Koreans prefer shares because they are very volatile. They have been known for a long time to take on a lot of risk and volatility as a way to get rich quickly. They have lost funds in Bitcoin (BTC-USD) and structured notes linked to China. 

Recently, Tesla has become increasingly well-known. They are also the biggest investors in XRP.

Leveraged exchange-traded products, like the 3x Tesla ETP, are made for trading in the short term, not buying for the long term. They can make you a lot of money when the market is going up, but they can also quickly wipe out your capital when the stock they’re based on goes down. Due to Tesla’s recent problems, South Korean investors who used debt to bet on a recovery have lost a lot of money.

Korean mom-and-pop investors will be in the most pain. These two classes of individuals make up a huge part of trading traffic. 

Last week, data from Mirae, NH Investment & Securities Co., and Samsung Securities Co. showed that Korean buyers had about $245 million worth of the London-listed Leverage Shares 3x Tesla product. Estimates show that it was more than 90% of the funds’ assets on 21st Feb.

Bora Kim, APAC head of strategy at Leverage Shares, an ETP provider said, “Tesla has long been one of the most favored stocks among Korean investors, and this enthusiasm has naturally extended to leveraged Tesla products like TSL3.” She added that the goods are made for trading in the short term.

South Koreans still like Tesla stock, and even when the market is unstable, individual buyers tend to put more money into fast-growing companies. However, because Tesla’s business future is still uncertain, regulators are closely watching the company, and there is a lot of competition, investors may need to rethink their high-risk strategies.

Why is Tesla stock declining?

The American automaker’s stock price has gone down because of falling sales and more competition. Investors may also be scared off by backlash against Elon Musk, the company’s controversial boss.

The European Automobile Manufacturers’ Association says that Tesla’s sales of new cars dropped by 45% in Europe last month. Even though sales of all-electric vehicles went up 37%, Europeans weren’t buying Teslas. 

Tesla sales have also slowed down in China. In January, they were 11.5% lower than the same month last year, according to CNBC. At the same time, sales went up at cheaper Chinese competitors like BYD and Xpeng.

This week, Tesla finally released a long-awaited update to its autopilot software in China. However,  reports say that the technology did not live up to promises.

TSLA price has now recorded drops for five days in a row, hitting a low point in November.

People may also be moving away from Musk because of his political ties. The CEO of Tesla has become an important person in the Trump government. This has even more so affected him at a personal level. His net worth is said to have reduced by $83 Billion and he could lose his Canadian citizenship. However, the billionaire is unbothered.

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