South Korea to Reportedly Allow Single-Stock Leveraged ETFs: First Batch to Track Two Chip Giants with 2x Leverage Cap

Why is South Korea launching leveraged ETF chips stocks during the AI boom?

Cailian Press, March 23 (Editor: Xia Junxiong) According to media reports, South Korea’s first single-stock leveraged ETFs are expected to be launched as early as May this year. These ETFs will be linked to South Korea’s two major memory chip giants—Samsung Electronics and SK Hynix.

Reports say that large asset management firms such as Mirae Asset Global Investments and Samsung Asset Management are preparing related products.

It is understood that to prevent excessive speculation and overheating competition, regulators may limit each company to only one such leveraged ETF product.

Common leveraged ETFs can provide twice or three times the daily performance of the underlying stock or index, but they also amplify losses.

Previously, due to high risk, South Korea banned the listing of single-stock leveraged ETFs domestically. However, this restriction has instead prompted risk-tolerant retail investors in South Korea to turn to similar products in the Hong Kong market.

CSOP’s SK Hynix 2x Daily Leveraged Product and Samsung Electronics 2x Daily Leveraged Product together manage assets of $3.3 billion, making them among the largest funds of this Chinese asset management company.

To diversify product offerings and enable intraday traders to engage in higher leverage trading, the Korea Financial Services Commission announced in January that it would accelerate the approval process for single-stock ETFs.

However, the Korea Financial Services Commission also stated that leverage multiples will be limited to twice the volatility of the underlying stock, rather than the three times some had hoped for. This means that if the underlying stock rises or falls by 1%, the leveraged ETF will roughly rise or fall by 2%.

Introducing single-stock leveraged ETFs could increase market volatility because these products amplify both gains and losses. The Korean stock market is already known for its high volatility.

Leveraged products must be rebalanced daily to maintain the targeted leverage ratio. After market declines, long leveraged funds typically reduce their exposure—often by selling futures or the underlying stocks—creating mechanical selling pressure and exacerbating the downturn.

For a long time, the market has warned about Korea’s over-reliance on the two major chip giants.

Samsung Electronics and SK Hynix together account for nearly 40% of the Korea Composite Stock Price Index (KOSPI), and their weight in the MSCI Korea Index is even half, meaning their stock price fluctuations have an amplifying effect on the overall market.

With the rapid development of artificial intelligence (AI), demand for high-bandwidth memory (HBM) has surged, driving Samsung and SK Hynix to achieve huge profits, and their stock prices have soared.

Over the past year, Samsung and SK Hynix stock prices have increased by approximately 208% and 341%, respectively.

(Cailian Press, Xia Junxiong)