Within South Korea's $4.3 trillion stock market, a surge of retail investor enthusiasm for leveraged exchange-traded funds has led to a situation where these products, combined with the two chip stocks they track, now account for over 70% of total trading volume.
This unusual concentration has sparked criticism of regulators for permitting such high-risk products, with one opposition lawmaker even calling for their delisting. Market volatility has increased notably since the launch of ETFs in late May that track double the daily price swings of Samsung Electronics Co Ltd and SK hynix (KRX: 000660). These products were designed to attract more retail capital into the local equity market.
Both Samsung and SK hynix have seen their shares surge by more than double this year at points, making the leveraged ETFs, which amplify bullish bets on these chipmakers, extremely popular with individual investors. However, concerns over massive AI investments have left these semiconductor stocks highly sensitive to any shifts in their supply chains, triggering even greater volatility in the related leveraged ETFs.
Data compiled by CLSA Securities Korea illustrates the intensifying concentration. On May 26, the day before the two leveraged ETFs began trading, Samsung and SK hynix accounted for 31% of the total trading volume on South Korea's stock exchange. When the trading volume of the two ETFs is added, this combined share reached 84% in late June and was still at 73% as of Tuesday, highlighting the growing market concentration in what is one of the world's strongest-performing markets.
"Leveraged ETFs deliver the promised returns, but ultimately someone needs to buy more of the underlying stocks when they rise and sell more when they fall to maintain a constant leverage ratio," said Ian Samson, a portfolio manager at Fidelity International. "The volatility introduced by retail participation and new leveraged products only serves to further amplify the volatility driven by the real, significant fundamental uncertainties facing South Korea's semiconductor industry."
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