(Bloomberg) -- Hong Kong’s retail investors are ramping up leveraged wagers that a surge in local equities may soon unravel.

Investors have poured around $400 million into inverse exchange-traded funds tracking the city’s shares this quarter, putting them on course for their biggest inflow since the three months to December 2022, according to an analysis by Bloomberg Intelligence. CSOP Hang Seng TECH Index Daily -2X Inverse Product and CSOP Hang Seng Index Daily -2x Inverse Product have attracted the most inflows.

The inflows show some traders believe the market “has gone up rather quickly and can have a reversal in the short run,” said Melody He, deputy chief executive officer at CSOP Asset Management Ltd. in Hong Kong. While institutional investors account for some of the money going into the inverse ETFs, which are designed to gain when their underlying indexes drop, “the main flow from this round has been retail.”

Hong Kong’s key equity gauges have rebounded about 30% from their January lows thanks to a combination of policy support, cheap valuations and foreign inflows. There are signs that the rally may take a breather with US short sellers piling in. The benchmark Hang Seng Index fell as much as 2.2% on Thursday, on track to extend its losing streak to a third day.

Still, “the behavior of retail investors going into inverse ETFs when market goes up is quite typical, as many like to execute a trend-reversal type of trade,” He said.

Globally, ETFs tracking Hong Kong stocks saw an outflow of $1.2 billion so far this quarter, up from $19 million in the first three months of the year, according to the BI report. Four out of five Hong Kong ETFs with the most outflows are tracking the Hang Seng Tech Index.

Read more: Hang Seng China Index 20% Bull Run Now Faces Multiple Headwinds

--With assistance from Jack Wang.

(Update with Thursday’s market performance in fourth paragraph)

©2024 Bloomberg L.P.