The upcoming initial public offering (IPO) of SpaceX on June 12 is expected to reshape the investment landscape for aerospace exchange-traded funds (ETFs) in South Korea. Asset management firms are aggressively marketing ETFs that prominently feature SpaceX, aiming to attract investors. However, analysts warn that after the IPO, investors may shift their funds from these ETFs to individual SpaceX shares, leading to unexpected changes in capital flow.
According to the Korea Exchange, the combined net assets of five aerospace ETFs listed in South Korea, which target SpaceX benefits, totaled 4.32 trillion won as of June 9. The competition to dominate the market has intensified since the launch of the 1Q U.S. Aerospace ETF in November 2022, followed by the KODEX U.S. Aerospace ETF, TIGER U.S. Space Tech ETF, ACE U.S. Space Tech Active ETF, and SOL U.S. Aerospace TOP10 ETF.
Fund managers are designing their products with the assumption that SpaceX will be included, promoting strategies to maximize its weight in the ETFs. With SpaceX's IPO expected to exceed 1,500 trillion won, they are emphasizing the benefits of these ETFs.
However, there are concerns that the SpaceX IPO could trigger a capital exodus from aerospace ETFs. Funds that previously chose ETFs as an indirect investment in the unlisted SpaceX may move to individual stocks after the IPO.
A similar trend was observed recently with single-stock leveraged products. Following the launch of a single-stock leveraged ETF based on Samsung Electronics and SK Hynix on May 27, significant capital flowed out of existing semiconductor leveraged ETFs. The Korea Exchange reported that the net assets of the KODEX Semiconductor Leveraged ETF dropped from 32.76 trillion won on May 26 to 19.79 trillion won by June 9, a decrease of 12.97 trillion won in just two weeks.
This trend of capital concentration has continued post-listing. According to Koscom ETF CHECK, the ETF with the largest net outflow in the past week was KODEX Semiconductor Leveraged, with 656.9 billion won, while TIGER Semiconductor TOP10 Leveraged saw the fourth-largest outflow at 293.4 billion won.
Conversely, the largest net inflows during the same period were seen in KODEX SK Hynix Single Stock Leveraged (1.1021 trillion won), KODEX Samsung Electronics Single Stock Leveraged (951.2 billion won), TIGER Samsung Electronics Single Stock Leveraged (675 billion won), and TIGER SK Hynix Single Stock Leveraged (635.2 billion won).
If a similar trend of moving funds from ETFs to individual stocks occurs after SpaceX's listing, it could lead to decreased trading volumes in existing ETFs, temporarily widening premiums and bid-ask spreads, thus increasing transaction costs for investors.
Hana Securities Research Center noted, "If market funds concentrate on SpaceX shares, smaller component stocks within the ETF's value chain may be neglected, leading to a situation where 'SpaceX rises, but ETF returns stagnate.'"
The management strategy following the IPO will also be a key factor influencing ETF performance. Hana Securities stated, "Global mega IPOs have historically shown significant volatility immediately after listing due to the release of lock-up periods and the digestion of supply. The ability to strategically adjust the timing of inclusion to avoid the initial overheating phase will determine ETF performance."
However, there is a prevailing outlook that the long-term inflow of passive funds will have a more substantial impact. Should SpaceX be specially included in the Nasdaq 100 index after its IPO, global passive funds are expected to flow in, potentially increasing valuations across the aerospace and artificial intelligence sectors, which could subsequently benefit domestic aerospace ETFs that include these stocks.
* This article has been translated by AI.
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