Leveraged ETF prices of South Korea's storage duo are jumping up and down. The government will meet on Thursday to discuss countermeasures

Leveraged ETF prices of South Korea's storage duo are jumping up and down. The government will meet on Thursday to discuss countermeasures.

The recent plunge in leveraged products tracking South Korea's core chip stocks has had a huge impact on South Korea's stock market and financial markets. The South Korean government's multi-department joint coordination mechanism will hold a special meeting on Thursday to discuss the risks and countermeasures.

Data compiled by the industry show that the current prices of a dozen leveraged open-end index funds (ETFs) tracking Samsung Electronics and SK Hynix that were listed in late May have almost halved.

Among them, the largest "SAMSUNG KODEX SK Hynix Single Stock Leverage ETF" (SAMSUNG KODEX SK Hynix Single Stock Leverage) has fallen by about 45% since its listing, and has fallen by more than 60% from its June high.

Note: The orange line in the figure is the trend of the transaction price of Samsung KODEX SK Hynix Single Stock Leveraged ETF, the black dotted line is the product listing price; the black column below represents the total asset management scale of the fund.

The data underscore the risks of investors taking leveraged bets on the two South Korean chip giants.

Although such ETF products can bring excess returns, they can also increase market volatility, because issuers usually need to "chase the rise and sell the fall" - that is, buy when they rebound and sell when they fall, in order to maintain the fund's leverage ratio consistent with its commitment.

Jung In Yun, CEO of Fibonacci Asset Management, a Korean quantitative asset management institution, said: "The sharp declines in these leveraged ETFs are particularly painful for retail investors because many appear to view them as long-term investments rather than short-term trading vehicles.

Large losses in these ETFs may reduce the willingness and ability of retail investors to purchase semiconductor stocks, making the market's rebound more dependent on the inflow of foreign institutional funds." South Korea's stock market remained volatile on Tuesday after Monday's plunge.

Due to market concerns about the overdraft of the global AI sector's valuation, the share price of SK Hynix, the leading stock on South Korea's KOSPI main board, plummeted 15% on Monday, the largest single-day drop in history.

According to local media reports on Monday, the high-level coordination mechanism of the four major economic departments of the South Korean government will hold a meeting on Thursday to study response plans for the impact of single-stock leveraged ETFs on the stock market.

This is the first time that this issue has officially entered the mechanism for discussion. This mechanism is the highest-level economic coordination platform jointly participated by the Ministry of Finance and Economics, the Financial Commission, the Bank of Korea and the Financial Supervisory Service.

South Korea's Deputy Prime Minister and Economy and Finance Minister Koo Yoon-cheol said at a parliamentary meeting last week that authorities are paying close attention to concerns that leveraged ETFs are exacerbating market volatility.

Lee Chan-jin, director of South Korea's Financial Supervisory Service, said last month that regulators are carefully reviewing the unintended consequences of these products since they were launched. In late May this year, eight local Korean asset management companies launched more than a dozen single-stock leveraged ETFs, with total assets of US$3 billion.

Prior to this, some leveraged ETF instruments in Hong Kong had been enthusiastically sought after. Since its launch in October last year, the "CSOP SK Hynix Daily 2x Leveraged Product" listed in Hong Kong has quickly become the largest product of its kind in the world.

The violent market turmoil and large-scale investor losses caused by this type of leveraged ETF have caused all sectors of the market to question the decision of South Korean regulators to allow such products to be launched.

South Korea has long banned such products but eased restrictions during the current market boom to attract retail inflows from the United States and prop up its currency.

However, as the funds have been increasingly blamed as a source of volatility, South Korea's financial regulator officials last month publicly expressed rethinking about approving the products. Industry data shows, however, that retail investor enthusiasm has yet to fade.

South Korea's leveraged and inverse exchange-traded products attracted $3.8 billion in inflows over the past month, driven mainly by single-stock leveraged products tracking SK Hynix and Samsung, data compiled by the industry showed. Jung In Yun said: "I expect regulators to strengthen investor protection rather than outright ban these products.

Improving suitability requirements, strengthening risk disclosures and strengthening investor education are all possible responses by regulators." (

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