Samsung Electronics and SK Hynix single-stock leveraged exchange-traded funds (ETFs) absorbed 13.4 trillion won from May 27 through July 16, according to KOSCOM CHECK data released on July 19. The 16 leveraged and inverse ETF products posted losses across all categories, with leveraged funds declining 47% and inverse funds falling 31% despite underlying stock declines, due to negative compounding effects amid market volatility. The South Korean government announced regulatory measures on July 16 to raise entry barriers, including increasing the minimum deposit requirement from 10 million won to 30 million won and expanding pre-education requirements, as the products drew criticism for amplifying market volatility.
Samsung and SK Hynix Leveraged ETFs Attract 13.4 Trillion Won in Net Inflows
According to KOSCOM CHECK, the 16 Samsung Electronics and SK Hynix single-stock leveraged and inverse ETFs launched on May 27 recorded total net inflows of 13.4 trillion won through July 16. Seven Samsung Electronics leveraged ETF products attracted 4.7 trillion won in net inflows, while seven SK Hynix leveraged ETF products drew 8.5 trillion won. Two inverse products designed to deliver 2x returns when Samsung Electronics and SK Hynix stock prices decline received combined inflows of 146.6 billion won.
By individual product, KODEX SK Hynix Single Stock Leverage recorded the largest inflows at 5.1 trillion won, followed by TIGER SK Hynix Single Stock Leverage at 3.0 trillion won, KODEX Samsung Electronics Single Stock Leverage at 2.8 trillion won, and TIGER Samsung Electronics Single Stock Leverage at 1.6 trillion won.
KODEX SK Hynix Leveraged ETF Falls 47.5% Since May 27 Launch
Despite substantial fund inflows, stock prices declined sharply. KODEX SK Hynix Single Stock Leverage, which attracted the most capital, fell 47.5% from 27,775 won on May 27 to 14,585 won on July 16, as the underlying SK Hynix stock declined 17.9% over the same period. KODEX Samsung Electronics Single Stock Leverage fell 41.7% as Samsung Electronics stock dropped 16.9%.
Inverse Products Post 31.1% Losses Despite Stock Declines
Inverse products also recorded negative returns despite declines in underlying stocks. SOL SK Hynix Futures Single Stock Inverse 2X fell 31.1% from 16,265 won to 11,205 won over the same period, while PLUS Samsung Electronics Futures Single Stock Inverse 2X declined 8.9%.
These losses resulted from negative compounding effects accumulating during price fluctuations amid high market volatility. For example, if Stock A (100 won) falls to 80 won (-20%) then recovers to 100 won (+25%), a leveraged product on Stock A (100 won) would fall to 60 won (-40%) then rise to 90 won (+50%), resulting in a 10 won loss. Such compounding effects accumulated during repeated large fluctuations in volatile market conditions.
Individual Investors Account for 92.7% of Leveraged ETF Participants
According to the Financial Supervisory Service, individual investors accounted for 92.7% of single-stock leveraged product investors from May 27 to June 12. KOSCOM CHECK data showed individual investors net purchased 14.0 trillion won of the 16 single-stock leveraged products from May 27 through July 16.
Government Raises Minimum Deposit to 30 Million Won on July 16
As concerns mounted that retail investor capital flowing heavily into single-stock leveraged products was amplifying market volatility, the government announced supplementary measures on July 16. Specific measures include raising the basic deposit from 10 million won to 30 million won and accepting only cash, expanding the minimum purchase unit from 1 share to 20 shares, and extending pre-education time requirements.
Market observers noted that while the measures may control new entry by small investors, questions remain about effectiveness in reducing overall market volatility. Reducing market volatility would ultimately require decreasing the scale of leveraged trading volume as a proportion of total market activity, and blocking small investors may not achieve significant reductions. In an online stock community survey conducted immediately after the government announcement on July 16, 84% of total respondents (5,627 out of 6,696) answered that the measures would be ineffective.
An asset management company official stated, "For investors already engaged in single-stock leverage, 10 million won or 30 million won may not feel like a significant hurdle," adding, "The reason leverage became problematic this time is that it greatly expanded market volatility, so if investors remain in the market, the effect will be limited."
FAQ
What happened to Samsung Electronics and SK Hynix leveraged ETFs from May 27 to July 16?
The 16 Samsung Electronics and SK Hynix single-stock leveraged and inverse ETFs absorbed 13.4 trillion won in net inflows from May 27 through July 16, according to KOSCOM CHECK data released on July 19. Despite the substantial inflows, leveraged products declined 47% and inverse products fell 31% due to negative compounding effects amid market volatility.
What regulatory measures did the South Korean government announce on July 16 for leveraged ETFs?
On July 16, the government announced measures to raise entry barriers for single-stock leveraged products, including increasing the minimum deposit requirement from 10 million won to 30 million won (cash only), expanding the minimum purchase unit from 1 share to 20 shares, and extending pre-education time requirements.
Why did inverse ETFs post losses despite Samsung Electronics and SK Hynix stock declines?
Inverse products posted losses due to negative compounding effects that accumulate during price fluctuations in volatile market conditions. SOL SK Hynix Futures Single Stock Inverse 2X fell 31.1% and PLUS Samsung Electronics Futures Single Stock Inverse 2X declined 8.9% from May 27 to July 16, despite declines in the underlying stocks.
