Bottom-fishing Funds Arrive! Semiconductor and Korea ETFs See Strong Inflows, Memory Sector Continues to "Bleed"

Despite recent weak price action, global ETF investors are “buying the dip” in the semiconductor and Korean markets at record scale and with very high leverage, while the memory sector is facing relentless selling pressure.

According to The TrackTrading Desk, JPMorgan's latest capital flow report released on October 19th showed that global equity ETFs garnered an impressive $46.3 billion in inflows during the week of October 16th. Among them, the 3x leveraged long semiconductor ETF (SOXL) saw a historic high inflow of $7.2 billion, and Korean ETFs experienced the strongest inflows since July this year. However, there is significant divergence in flows within the tech sector, with DRAM (memory) themed ETFs witnessing net outflows for the eighth consecutive week.

The report notes that the current market is showing classic traits of "panic bottom fishing"—retail and aggressive investors are using highly leveraged tools to bet on a rebound in AI-related semiconductors, while institutional CTA strategy funds are simultaneously reducing their exposure to US equities, making the tug-of-war between the two forces highly noteworthy. The divergence of flows between memory and the overall Korean market hints that worries about the fundamentals of storage chips have not dissipated.

In addition, CTA (Commodity Trading Advisor) funds have begun reducing US equity exposure and shorting the Russell 2000 Index, while in the fixed income market there is a rotation from long-dated US Treasuries to municipal bonds.

Leverage Capital Frenziedly Buys the Dip; Semiconductors and Korean Market Become Core Inflow Drivers

Investors’ conviction in AI and technology equities remains strong, to the point of deploying record-breaking leveraged instruments.

Data show that leveraged ETF products saw a record $9.3 billion in weekly inflows. The semiconductor segment was the absolute core driver, with semiconductor-themed ETFs attracting about $7.6 billion in total inflows. Notably, the 3x leveraged long semiconductor ETF (SOXL) had single-week inflows of $7.2 billion, hitting a new all-time high, three times the previous weekly peak.

Additionally, the Korean market saw the strongest buying since July, with single-week inflows of $1.3 billion, about half of which went into the 3x long Korea ETF (KORU, about $600 million). Other leveraged products like TQQQ (with approximately $800 million inflow) and short-leveraged SOXS (about $500 million) also received significant capital attention.

Even though the Korean market (primarily driven by semiconductor and memory chip exports) saw strong buying, internal flows within the tech sector showed sharp divergence. Memory-themed ETFs (DRAM) saw outflows for the eighth consecutive week, with the largest single-week redemption so far (outflow of $900 million).

Analysts believe this shows that although investors are willing to use broad-based Korea ETFs to bet on a rebound, the market remains clearly wary of the storage chip segment led by SK Hynix, Micron, and similar players.

Other US Equity Sectors Face Sell-Offs, CTA Funds Reduce US Exposure

Stripping out the frenzy in the tech sector, fund flows in other US equity sectors are generally lackluster. The industrials sector took a heavy hit, losing $1.6 billion, while sectors such as real estate, consumer discretionary, utilities, and materials also faced sell-offs.

From a systematic fund perspective, CTA funds have most likely cut their US equity exposure, as both the S&P 500 and Nasdaq 100 dropped below their 50-day moving averages on Friday.

Moreover, The CTA signal for the Russell 2000 index (RTY) has flipped to short. CFTC position data also supports this, with asset managers selling futures on the Russell 2000 and mid-cap (MID) indices, while leveraged funds have added to their short positions in 2-year and 10-year US Treasuries.

Rotation in Fixed Income Markets, Emerging Markets and Gold Favored, Crypto ETFs Face Sell-Offs

In fixed income, the "buy the dip" momentum has recently cooled, with weekly inflows at $10 billion. There was a clear rotation within the bond market: significant outflows from long-duration treasuries (outflow of $3.4 billion) and mortgage-backed securities (outflow of $800 million), while municipal bonds saw strong demand (inflow of $5.1 billion for the third consecutive week).

In emerging markets, Brazil continued to attract strong capital inflows ($1.2 billion) ahead of the final round of elections. For commodities, precious metals drew $1.1 billion in inflows, led mainly by the gold ETF GLD (with an $800 million inflow). In the currency/multi-asset category, crypto ETFs experienced $700 million in outflows.