South Korea’s First 2x Leveraged ETFs to List Tomorrow: Linked to Samsung, SK Hynix, Daily Volatility ±60%

It is reported that this batch of products was issued by eight asset management companies, including Samsung, Mirae Asset, Korea Investment, and KB. There are a total of 18 products, including 16 ETFs (14 long leveraged and 2 inverse) and 2 long leveraged ETNs. The inverse products offer 2x short returns.

These are the first leveraged ETFs approved following South Korea's amendment of the Capital Markets Act on April 28. The new regulations allow a single leading stock to serve as the underlying asset, raising the cap on individual stock holdings from 30% to 100% and removing the requirement to hold at least 10 stocks. Currently, only Samsung Electronics and SK Hynix meet the entry thresholds: a market capitalization share of no less than 10% and an average daily trading volume share of no less than 5% over the past three months.

These two leading underlying stocks have delivered particularly eye-catching performances amid this year's AI wave. As of May 25, Samsung Electronics and SK Hynix have recorded year-to-date gains of 144% and 199%, respectively. In a report dated May 15, Nomura Securities raised its price targets for the two companies to 590,000 KRW and 4,000,000 KRW, respectively.

The two KODEX leveraged products from Samsung Asset Management had an initial total scale of approximately 2.4 trillion KRW, setting a historical record for the listing day of leveraged products in South Korea. Each ETF was listed at 20,000 KRW, which is far below the share prices of Samsung Electronics (approx. 300,000 KRW) and SK Hynix (approx. 2,000,000 KRW).

The management fee for Samsung Asset Management’s KODEX products is 0.29%, compared to 0.7%–1.0% for similar products in Hong Kong. Samsung Asset Management utilizes a physical delivery design, which is expected to reduce annual transaction costs by more than 1%.

South Korea boasts more than 14 million retail investors, and financial regulators have approved these products in an effort to repatriate domestic capital that has been flowing into similar offshore offerings.

Year-to-date, Hong Kong-listed Samsung 2x leveraged ETFs have attracted roughly $1.3 billion in inflows, with CSOP Asset Management's related products reaching $1.65 billion in assets under management; the SK Hynix-linked product is currently the world’s largest single-stock leveraged product. Mirae Asset Securities expects net inflows into domestic ETFs to reach as much as 5.3 trillion won.

Regulators require investors to meet a 10 million won initial margin requirement and complete a mandatory two-hour investor education course. As of May 25, over 140,000 South Koreans have signed up for the training. Kim Do-hyung, head of the ETF advisory division at Samsung Asset Management, noted: "Gains and losses on single-stock leveraged products can both be doubled, making them high-risk financial products."

However, significant risks are hidden behind high yields. The "negative compounding effect" of leveraged ETFs is particularly pronounced in volatile markets. South Korea's Financial Supervisory Service (FSS) noted that if the underlying asset fluctuates repeatedly, the cumulative returns of a leveraged structure will underperform the underlying asset itself.

An official from the FSS warned, "Inexperienced investors may blindly enter the market due to their trust in the 'Samsung Electronics' brand, only to suffer losses that exceed their expectations." The FSS has explicitly stated that such products are only suitable for short-term investment and are unfavorable for long-term investors.

The combined market capitalization of Samsung Electronics and SK Hynix now accounts for over 47% of the KOSPI index; consequently, a single piece of news can trigger violent swings in the index. The daily rebalancing mechanism of leveraged ETFs may amplify market volatility during turbulent trading sessions.

According to a report from the UBS trading desk, on March 3, the day SK Hynix plummeted more than 10%, rebalancing-related trading volume accounted for 60% of the stock's total turnover in the final hour of trading. During the market sell-off on May 15, Barclays estimated that approximately 17% of SK Hynix's daily volume and about 10% of Samsung Electronics' daily volume originated from rebalancing operations.

Jung In Yun, CEO of Singapore-based Fibonacci Asset Management, stated that these ETFs will exacerbate existing concentration risks and that index volatility will remain at elevated levels. South Korean regulators also warned that supply-demand imbalances or insufficient liquidity could cause premiums or discounts to emerge between an ETF's net asset value and its trading price.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.