Key Takeaways
South Korea is set to launch its first single-stock leveraged exchange-traded funds this week, with 16 new products offering twice the daily performance of chipmakers Samsung Electronics Co. and SK Hynix Inc.
"The ETFs will intensify the existing problem — the concentration risk," said Jung In Yun, chief executive officer at Fibonacci Asset Management Global in Singapore. "This poses a structural problem for longer-term investors as the volatility of the index will remain elevated."
The launch includes 2x leveraged and 2x inverse products from eight asset managers, including Samsung Asset Management and Mirae Asset Global Investments. The move follows massive retail demand for similar overseas products, with Hong Kong-listed leveraged ETFs on Samsung and SK Hynix attracting a combined $2.6 billion in inflows this year. Analysts at Mirae Asset Securities Co. estimate the new domestic funds could draw up to 5.3 trillion won ($3.5 billion).
The introduction of these ETFs aims to recapture domestic trading activity but raises concerns about market stability. The daily rebalancing required by these funds has already been blamed for sharp intraday swings, with Barclays Plc estimating it accounted for up to 17% of SK Hynix's trading volume during a selloff on May 15.
The regulatory approval marks a significant shift for South Korea's Financial Supervisory Service, which had previously barred such high-risk products. The decision was driven by a surge of local investors using overseas exchanges to access leveraged bets on the country's top AI-related stocks. By allowing the funds onshore, regulators aim to apply domestic investor protections and monitoring. The demand is underscored by the 300,000 investors who completed mandatory training for leveraged ETF investing in the first two months of this year, a figure that surpasses the total for all of 2025.
Market participants are pointing to the inherent risks of leveraged products, which rebalance daily to maintain their target exposure. This mechanical buying and selling can amplify market moves, independent of company fundamentals. UBS Group AG noted that rebalancing flows accounted for as much as 60% of SK Hynix’s trading volume in the final hour of a session on March 3 when the stock fell over 10%. "While the current enthusiasm surrounding AI-related semiconductor stocks is supported by strong fundamentals... the increasing use of leveraged products and the growing concentration of market leadership may contribute to higher short-term volatility," said Chan H Lee, a managing partner at Petra Capital Management in Seoul.
The new ETFs could further entrench the Kospi's reliance on Samsung and SK Hynix, which together represent nearly half of the benchmark index's market capitalization. Only stocks meeting strict size and trading volume thresholds are currently eligible for single-stock ETFs.
This article is for informational purposes only and does not constitute investment advice.
