South Korea Tech ETF Slides as Central Bank Shifts Stance on Single-Stock Leveraged Products

Stock News14:04

The CSOP Korea Star and Tech ETF (03431) fell more than 3% in trading. At the time of writing, it was down 2.81% to HK$23.48, with a turnover of approximately HK$26.76 million.

The decline follows market reports indicating that the Bank of Korea has joined other regulators in issuing a warning about the risks associated with single-stock leveraged ETFs linked to companies like Samsung Electronics and SK Hynix. The central bank cautioned that these products could amplify market volatility and exacerbate the Korean stock market's excessive concentration in a handful of semiconductor stocks.

The Bank of Korea stated that a significant drop in share prices could lead to ETF redemptions and portfolio rebalancing, which would magnify losses for retail investors and potentially trigger broader market instability.

This warning represents a notable shift in the central bank's position. In its Financial Stability Report released on June 24, the bank had cited the government's original intent behind launching such products, suggesting that single-stock leveraged ETFs "could help provide domestic alternatives, curb capital outflows, and attract foreign investment into Korea." The latest written warning, with its stronger language, marks a significant change in the central bank's stance.

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