Leveraged exchange-traded funds (ETFs) tracking shares of Japanese memory chip manufacturer Kioxia are set to debut in the United States, potentially intensifying the stock's price swings.
According to compiled data, Kioxia will be the first Japanese company to have its stock linked to a single-stock leveraged ETF. This places Kioxia at the center of a surge in investor bets on artificial intelligence (AI), a trend that has already expanded the leveraged ETF market to $270 billion.
Leveraged ETFs are a type of fund that uses tools such as underlying stocks, futures, and options to amplify investment returns. These funds require daily rebalancing to deliver the promised performance to investors. This is typically achieved through swap contracts with banks.
Since the scale of rebalancing trades can be predicted based on stock price changes and ETF size, traders like hedge funds and market makers often buy or sell the underlying assets ahead of the rebalancing, further increasing market volatility. However, high trading volumes could also help absorb the impact of leveraged ETF-related trades. Additionally, unless these funds grow significantly, their daily rebalancing volumes might remain relatively limited.
Fund issuers including Corgi Strategies LLC, GraniteShares Advisors LLC, and Tuttle Capital Management LLC are seeking to launch such products. US regulatory filings show at least nine ETFs are awaiting approval, aiming to deliver two times the daily return of Kioxia shares or its American Depositary Receipts (ADRs), or two times the inverse daily return.
Matthew Tuttle, CEO of Tuttle Capital, which is preparing to launch a Kioxia leveraged ETF as early as next month, stated, "There are many Japanese companies that are very attractive to US investors seeking investment opportunities. Japan will be the next wave of growth for these products." He noted that the company expects to launch the "T-REX 2X Long Kioxia Daily Target ETF" next month, declining to disclose its target size. Tuttle added that beyond US investors, the firm has seen interest from Korean investors, who currently account for about one-third of its fund management scale.
Despite Kioxia's recent sharp fluctuations, many analysts remain bullish on the company. Data shows that analysts' average target price for Kioxia over the next 12 months is more than 110% above its current share price.
Will Lind, CEO of GraniteShares Advisors, said, "We have received demand from Japanese investors looking to invest in specific products. Kioxia is clearly one of them, given its market performance and investor attention." He expects the two Kioxia leveraged ETFs launched by GraniteShares to be available for trading on Japanese online brokerage platforms in the future.
The flash memory chipmaker is already the most volatile stock among major Japanese companies. In early June, Kioxia briefly became one of Japan's most valuable companies by market cap, but its value subsequently nearly halved as concerns over the AI boom grew. The instability of such tech stocks has also contributed to significant volatility in the broader Japanese market.
After years of being largely overlooked by global investors, the Japanese stock market is now undergoing a rapid adjustment phase. The annualized volatility based on the past 30 trading days shows the Nikkei 225 index currently has a volatility rate exceeding 37%, notably higher than Hong Kong's Hang Seng Index at 22% and the S&P 500 at 13%.
However, the planned launch comes amid heightened scrutiny of leveraged ETFs in recent months, as these products can amplify stock price movements. Following a surge in investor demand for leveraged ETFs linked to South Korea's Samsung Electronics and SK Hynix—which led to rapid asset growth and wild swings in the Korean market, pushing the Kospi index's volatility indicator above 75%—regulators have suspended the introduction of new single-stock leveraged ETFs.
Andrew Jackson, Head of Japan Equity Strategy at Ortus Advisors, commented on the anticipated Kioxia ETFs, saying, "These leveraged ETFs distort normal market mechanisms and significantly increase volatility, as seen recently in South Korea. These products are not a good idea because they only amplify the irrational swings already present in the market, particularly in AI-related stocks, making it harder for genuine long-term investors."
Furthermore, the impact of such leveraged ETFs in Japan may not be limited to Kioxia. According to US regulatory filings, Tuttle Capital also plans to launch funds tracking SoftBank Group, Nintendo, and Metaplanet. Direxion is preparing to list leveraged products linked to companies like Tokyo Electron and Toyota Motor. Themes ETF Trust is targeting firms such as Fujikura and Lasertec.
Kei Okazaki, Head of ETF Secondary Market Trading at the Tokyo Stock Exchange, stated that under the current listing system, single-stock leveraged ETFs cannot be publicly listed in Japan due to a lack of sufficient diversification. However, he noted that Japanese investors can invest in these overseas-listed products through their brokers.
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