The value of a new batch of single-stock leveraged exchange-traded funds (ETFs) launched in South Korea has plummeted significantly since their debut on the Seoul exchange in late May. Products heavily concentrated on tracking Samsung Electronics Co. and SK Hynix Inc. have seen their prices nearly halve.
According to compiled data, the largest of these, the "SAMSUNG KODEX SK Hynix Single Stock Leveraged ETF," with assets under management of $3.4 billion, has fallen approximately 45% since listing and has retreated more than 60% from its June peak.
This decline has resulted in substantial losses for many South Korean retail investors who used these leveraged instruments to amplify their expected gains from semiconductor stocks. The leveraged bets on the country's two chip giants have drawn attention because Samsung and SK Hynix occupy key positions in the global artificial intelligence supply chain and had previously driven the outperformance of the Korean stock market globally.
Leveraged ETFs can magnify gains when share prices rise but similarly amplify losses during downturns. Furthermore, these products themselves can exacerbate market volatility, as issuers typically need to buy more of the underlying assets when prices rise and sell when they fall to maintain the target leverage ratio.
"The sharp decline in these leveraged ETFs is particularly painful for retail investors, as many seem to have viewed them as long-term investments rather than short-term trading tools," said Jung In Yun, CEO of Fibonacci Asset Management.
He added, "The massive losses from these ETFs could dampen retail investors' willingness and ability to buy semiconductor stocks, making any market recovery more reliant on inflows from foreign institutional funds."
On Monday, SK Hynix shares in Seoul recorded a historic drop of 15%, amid concerns that the previous strong rally in global AI stocks had become overextended. Following this sharp fall, the Korean market also declined sharply on Tuesday, with the KOSPI index plunging as much as 5% intraday, falling below the 6,500-point level to a new low since April 24, while SK Hynix shares dropped over 8% during the session.
Over a dozen single-stock leveraged ETFs listed in Seoul at the end of May have a combined asset size of $3 billion. South Korea's launch of such products is also related to the previous popularity of similar instruments in the Hong Kong market. Since its listing last October, the "CSOP SK Hynix Daily (2x) Leveraged Product" traded in Hong Kong has rapidly become the largest product of its kind globally.
As these ETFs bring greater volatility and more pronounced losses, the decision by South Korean regulators to approve their listing has faced backlash. South Korea had long prohibited such products but adjusted its policy during the market boom, hoping to attract retail capital that was flowing to the U.S. market and to support the Korean won.
However, as these funds are increasingly seen as a source of volatility, the country's top financial regulator last month expressed regret over approving their listing. This statement reflects growing regulatory concern about the spillover effects of product risks.
Despite this, retail interest in high-leverage trading tools has not cooled significantly. According to data compiled by Bloomberg Intelligence, leveraged and inverse exchange-traded products in South Korea attracted $3.8 billion in inflows over the past month, primarily into single-stock funds tracking SK Hynix and Samsung.
Jung In Yun believes subsequent regulatory focus is more likely to be on investor protection rather than a complete product ban. He stated, "I expect regulators to strengthen investor protection rather than outright ban these products. Stricter suitability requirements, enhanced risk disclosures, and improved investor education are all possible responses."
South Korea Raises Growth Forecast, Betting on AI Chip Boom
While capital markets are under pressure from chip stock volatility, the South Korean government has become more optimistic about the overall economic outlook. In releasing its economic policy strategy for the second half of the year on Tuesday, the government raised its economic growth forecast for this year from the previous 2% to 3%, higher than the 2.6% forecast given by the International Monetary Fund (IMF) last week; the IMF's figure was consistent with the Bank of Korea's May prediction.
According to a joint government statement, South Korea believes the expansionary momentum that began in the second half of last year will continue to strengthen. This judgment is based on the view that strong demand for AI chips will continue to offset the drag from Middle East conflicts, while supplementary budgets will also help cushion the impact of rising energy costs. The government expects economic growth to slow to 2.2% next year.
The government's assessment of external balances is also more positive. Officials anticipate that the current account surplus will reach a record $290 billion this year, driven by soaring chip prices improving trade terms. According to data disclosed in government documents, South Korea recorded a current account surplus of $141.3 billion in the first five months of 2026, surpassing last year's full-year historical high of $123.1 billion.
In addition to growth and external balances, the government also expects nominal growth to reach its fastest pace in nearly three decades, pushing per capita gross national income close to $40,000 and reducing the government debt-to-GDP ratio for 2026 to 47% from the previously forecast 50.6%.
Regarding the price outlook, the government cautioned that energy markets and food remain major sources of uncertainty, which could keep this year's inflation at a relatively high level of 2.6%. In recent months, South Korea's consumer price increases have been significantly above the central bank's 2% target and have risen to their fastest pace in over two years.
Regarding financial markets, South Korean officials stated they will continue to take broad measures to stabilize the won and advance reform arrangements to enhance the currency's convertibility. Related measures include expanding the offshore use of the won, extending support for banks' foreign currency financing, and increasing the issuance of sovereign foreign currency bonds.
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