The long-discussed risks of South Korea's stock market over-reliance on two major chip giants have often been overlooked—until recent turmoil linked to tensions in Iran shook the nearly $4 trillion market. As investors try to identify the cause of extreme price swings—a record plunge followed by the largest rebound since 2008—one explanation is gaining traction: leveraged exchange-traded funds (ETFs) tied to SK Hynix and Samsung Electronics are exerting growing influence. These two stocks together account for nearly 40% of the weighting in the Kospi index and as much as 50% in the MSCI Korea Index, making their performance critical to the broader market.
Since South Korea prohibits single-stock leveraged ETFs, investors have turned to similar products listed in Hong Kong. The CSOP SK Hynix Daily Leveraged (2x) Product and the CSOP Samsung Electronics Daily Leveraged (2x) Product collectively manage $3.3 billion in assets, ranking among the largest funds offered by the Chinese asset manager. However, their size comes with significant drawbacks: daily rebalancing trades required to maintain leverage ratios can exacerbate stock price volatility, especially during the final trading hour.
"The rapid expansion of leveraged ETFs linked to Samsung Electronics and SK Hynix is beginning to add a layer of structural volatility to the Korean market," said Jung In Yun, CEO of Fibonacci Asset Management Global. "Given Samsung and SK Hynix’s oversized weight in the Kospi, this could create a feedback loop that magnifies index swings and raises concerns about heightened volatility during future stress periods."
Leveraged products must rebalance their positions daily to maintain target leverage ratios. After a market decline, bullish leveraged funds typically reduce exposure by selling futures or underlying stocks. This mechanical selling pressure can deepen losses. According to a recent report from UBS's trading desk, rebalancing trades accounted for as much as 60% of SK Hynix’s trading volume in the final hour on March 3, when the stock plunged 16%. On other recent trading days, such transactions made up around 30% of volume.
Leveraged ETFs tracking the Korean market only began attracting attention late last year, when the Kospi’s globally notable rally spurred investor interest. Compiled data shows that such funds globally have seen inflows of $4.4 billion year-to-date as of March 5, 2026, on track for a quarterly record. Although this represents less than 20% of total ETF inflows, investors note that due to daily rebalancing, their impact on volatility far exceeds their size.
Investor enthusiasm remains strong even as markets swing wildly due to the Iran conflict and soaring energy prices. Over the past week, CSOP’s SK Hynix and Samsung products ranked second and fourth, respectively, in net inflows among global leveraged ETFs tracking South Korea.
Other factors are also driving sharp moves in the Korean market. After the Kospi surged nearly 140% in the year through February 27, foreign investors began taking profits as Iran-related tensions escalated. At the same time, many retail investors who entered the market using record levels of margin debt faced forced liquidations as sharp stock declines triggered margin calls.
"This is a market driven by retail leverage," said Rob Li, Managing Partner at Amont Partners in New York, referring to South Korea. "When significant leveraged capital is involved, geopolitical shocks naturally trigger much sharper volatility."
Beyond these factors, a meeting between South Korean financial regulators and industry participants also highlighted the risks of leveraged investing. As Seoul plans to allow domestic trading of such high-risk products—aimed at attracting retail capital and boosting the stock market—even greater volatility may lie ahead.
Although retail investors are seen as the main source of ETF inflows, Chan H. Lee, Managing Partner at Seoul-based hedge fund Petra Capital Management, believes the extreme volatility suggests that professional global macro and multi-strategy players active in Korea are the real drivers.
"Users of these ETFs are likely so-called multi-strategy funds," Lee said. "Their leveraged operations combined with global macro quantitative strategies cause markets to rise and fall much more sharply than if only retail traders were involved."
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