Jung Eui-hyun, head of ETF operations at Mirae Asset Asset Management, stated in a recent interview with Herald Economy that attributing recent market volatility primarily to single-stock leveraged exchange-traded funds (ETFs) is exaggerated. Jung's comments address concerns that Samsung Electronics and SK Hynix stock fluctuations stem from leveraged ETF activity. He acknowledged that leveraged ETF rebalancing may influence volatility to some extent, but emphasized this view overstates their role. Jung diagnosed recent volatility in Samsung Electronics and SK Hynix as resulting from global semiconductor industry conditions and macroeconomic factors working together. The debate centers on whether these financial products amplify price swings in major Korean stocks through daily rebalancing mechanisms, amid broader discussions about single-stock leveraged ETFs' market impact.
Jung Attributes Volatility to Global Semiconductor Factors and Geopolitical Risks
Jung stated that volatility expansion in Samsung Electronics and SK Hynix resulted from global semiconductor industry conditions and macroeconomic factors working together. He noted that volatility expanded not only in Samsung Electronics and SK Hynix but across global semiconductor stocks including US-based Micron. Jung explained this as a result of complex factors including geopolitical instability from US-Iran conflict and concerns about semiconductor earnings peak-out.
Short Gamma Structure Cited in Volatility Debate
The short gamma structure serves as the basis for claims that single-stock leveraged ETFs amplify volatility. Leveraged ETFs conduct rebalancing near market close daily to maintain target returns. The structure involves additional purchases of underlying assets when prices rise and additional sales when prices fall. Critics point out this structure can amplify volatility as buying triggers more buying in rising markets while selling triggers more selling in declining markets.
Individual Investor Activity Dilutes Rebalancing Impact
Jung emphasized that short gamma effects are diluted by individual investor trading in the domestic market. He stated that when individual purchases of single-stock leveraged ETFs increase during downturns, creation volume flows in and asset managers buy underlying assets accordingly. Jung explained that even with sell volume from rebalancing, simultaneous buying from creation funds reduces net selling volume. He added that moving the stock price of a stock like Samsung Electronics with daily trading volume reaching trillions of won requires substantial trading volume, and current single-stock leveraged ETF rebalancing alone does not reach levels that dominate the market.
Samsung Electronics Trading Volume Exceeds Leveraged ETF Assets
According to Korea Exchange, Samsung Electronics trading volume reached 5.816 trillion won on the 10th. As of the same date, total assets under management (AUM) of seven Samsung Electronics single-stock leveraged ETFs stood at 4.8917 trillion won, falling short of Samsung Electronics' daily trading volume.
Jung Highlights Standardized Derivative Access for Retail Investors
Jung emphasized positive functions of single-stock leveraged ETFs. He stated the biggest advantage is providing standardized derivative products to individuals, noting the structure has relatively limited risk compared to individuals directly trading futures and options. Jung added that effects of enhancing liquidity and price discovery functions in individual stock futures markets can be expected.
Jung drew a line stating leveraged ETFs are not suitable products for all investors. He stated that since leverage is fundamentally a risky asset, investors who accurately understand product structure and risks should approach it, advising against investment if unable to set target returns and stop-loss standards. For investors holding Samsung Electronics or SK Hynix, Jung suggested a strategy of converting some holdings to leveraged ETFs during downturns then returning to regular stocks during rebounds. He explained this approach can help increase recovery resilience after declines while reducing negative compounding effects from long-term holding.
Jung Counters Memory Semiconductor Peak Theory
Regarding recently raised memory semiconductor peak theory, Jung rebutted that long-term growth prospects have not been damaged. He stated no one considers NVIDIA's graphics processing unit (GPU) and artificial intelligence (AI) accelerator industries as cyclical industries, adding that the memory industry is at a point where perception is shifting to a growth industry. Jung noted that the market will continue a process where questions about AI investment are raised, resolved, and raised again, emphasizing the need to distinguish between short-term volatility and long-term growth prospects.
FAQ
Why does Jung Eui-hyun say single-stock leveraged ETFs are not the main cause of volatility?
Jung stated that recent volatility in Samsung Electronics and SK Hynix resulted from global semiconductor industry conditions and macroeconomic factors including geopolitical instability and semiconductor earnings concerns working together, rather than leveraged ETF activity alone.
How does individual investor activity affect leveraged ETF rebalancing impact?
Jung explained that when individual purchases of single-stock leveraged ETFs increase during downturns, creation volume flows in and asset managers buy underlying assets accordingly, meaning simultaneous buying from creation funds reduces net selling volume even with rebalancing sell pressure.
What scale comparison did Jung provide regarding Samsung Electronics?
Jung noted that Samsung Electronics' daily trading volume reached 5.816 trillion won on the 10th, while total AUM of seven Samsung Electronics single-stock leveraged ETFs stood at 4.8917 trillion won as of the same date, demonstrating that ETF assets fall short of daily trading volume.
