Heavy investment in AI chips is not enough—Korean retail investors get another "accelerator": single-stock leveraged ETFs are about to debut.

South Korean retail investors’ enthusiasm for AI chip stocks is about to gain a new amplifier. The first batch of leveraged ETFs linked to individual stocks debuts this week, targeting Samsung Electronics and SK Hynix—two chip giants at the core of global AI trading. While these products offer potential excess returns, they may also push the already high volatility of Korea's stock market to new heights.

According to Bloomberg, the fourteen leveraged ETFs expected to be listed in late May are all tied to Samsung or SK Hynix, promising twice the daily movements of the underlying stocks. Future net inflows are projected to reach 5.3 trillion won (about $3.5 billion), and strong demand from Korea’s over 14 million retail investors is widely anticipated.

However, regulators are taking a cautious stance. Korea's Financial Supervisory Service has issued warnings that the new products could amplify volatility and harm retail interests. Analysts also point out that the two heavyweight stocks already account for nearly 50% of the Korea Composite Stock Price Index (Kospi), and the introduction of leveraged ETFs will deepen the market’s reliance on these two stocks.

Strong Retail Demand Drives Regulatory Relaxation

Korean retail investors’ appetite for leveraged products has been longstanding. Leveraged ETFs tied to the Kospi and those tracking Korea chip stocks listed in Hong Kong have long been popular among Korean day traders; significant funds have also flowed into US-listed leveraged semiconductor funds.

This “going overseas” trend has directly prompted changes in regulatory policy. Previously, Korea’s regulators had banned such products due to their high risks, but now their stance has shifted—allowing the launch of single-stock leveraged ETFs to bring retail funds that had flowed abroad back to the domestic market.

Data confirms the scale of this demand. So far this year, a Hong Kong-listed Samsung 2x leveraged ETF has attracted inflows of about $1.3 billion, surpassing similar products tracking US tech giants like Tesla and Microsoft. The CSOP SK Hynix Daily 2x Leveraged ETF, linked to SK Hynix, has drawn in a comparable amount and is now the world’s largest single-stock leveraged product.

In the first two months of this year, the number of investors completing mandatory online training for investing in leveraged products reached 300,000. According to Korea’s Mirae Asset Securities analyst Yoon Jaehong, this figure already exceeds the annual total projected for 2025.

Rebalancing Mechanism Seeds Volatility Risks

Leveraged ETFs do not come without costs. These products operate based on derivatives and swap contracts. Issuers must quickly buy or sell the underlying assets before market close to maintain the promised leverage ratio, leading to large-scale rebalancing transactions.

There is precedent for the impact of this mechanism during extreme market conditions. According to a UBS trading desk memo obtained by Bloomberg, on March 3 SK Hynix shares plunged more than 10% in a single day, and in the last hour of trading, trades related to leveraged ETF rebalancing accounted for as much as 60% of SK Hynix’s total volume.

The May 15 market was also noteworthy. Barclays estimated about 17% of SK Hynix’s daily volume and about 10% of Samsung’s stemmed from rebalancing—while the Kospi’s largest intraday drop reached 7.6% that day.

Analysts say the launch of single-stock leveraged ETFs is not just a matter of liquidity, but also reflects deep structural risks in the Korean equities market.

“These ETFs amplify existing issues—concentration risk,” said Jung In Yun, CEO of Fibonacci Asset Management in Singapore. “This presents a structural challenge for long-term investors, keeping volatility high and making the Korean market hard to grasp.”

Chan H Lee, managing partner at Seoul hedge fund Petra Capital Management, shares a similar view. He noted that although the current fervor for AI-related semiconductor stocks is supported by sound fundamentals and record earnings momentum in the memory sector, “the increased use of leveraged products and rising market leadership concentration may lift short-term volatility.”

Jung In Yun remarked, “AI trading is basically the central obsession for retail investors now, and liquidity is highly concentrated in these names. In the short term, this will very likely boost volumes and further reinforce AI momentum. But at the same time, the Kospi will become more fragile.”

The timing of the new product launch is itself telling. The Kospi has performed impressively this year, having more than doubled since the end of 2024, driven by soaring chip stocks and improved shareholder returns—but meanwhile, single-day intraday swings over 5% are becoming increasingly common.

For retail investors about to step in, tool upgrades mean simultaneous amplification of potential gains and risks. Regulators have already issued risk warnings, and tests of market structure will truly begin with the official trading of the first batch of single-stock leveraged ETFs.

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