Korean stock market leverage out of control: $45 billion in funds surge, SK Hynix single ETF dwarfs US tech giants in scale

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The degree of leverage in the South Korean stock market is reaching extremes at an unprecedented pace. The rapid expansion of leveraged ETFs is reshaping the market's capital structure and pushing systemic risk to historic highs.

According to the latest data from The Kobeissi Letter, the assets under management (AUM) of South Korea’s leveraged ETFs have reached a historic high of about $45 billion, rising by approximately 800% since early 2026. Meanwhile, the proportion of leveraged exposure to the free-float market capitalization in South Korea has hit a record level of 2.9%, more than tripling since the beginning of the year, indicating that leveraged funds are significantly deepening their penetration into market liquidity.

With regulatory easing and the pursuit of returns by capital, the South Korean market displays a globally rare preference for high leverage. Retail funds continue to flow in, with cumulative net purchases of 62 trillion won since May, further amplifying the expansion of leveraged ETF scale and the market's sensitivity to volatility.

SK Hynix leveraged ETFs are the largest in the world, high leverage amplifies market sensitivity

The semiconductor sector has become the core focus for capital bets. Among single-stock leveraged ETFs, products related to SK Hynix once reached about $15 billion in size, becoming the largest of their kind globally. By comparison, the scale of 2x long ETFs tracking major US tech stocks usually does not exceed $10 billion, highlighting Korea’s much higher degree of concentration and leverage.

This phenomenon is closely related to changes in regulatory policy by Korean financial authorities who approved single-stock leveraged ETFs. Although there is a 2x leverage cap and limits on the number of products from a single institution, the first ETFs targeting Samsung Electronics and SK Hynix quickly attracted large inflows, creating a distinct siphoning effect for capital.

Driven by the AI boom and inflows of foreign capital, the KOSPI index has surged over 60% this year, and has repeatedly set new intraday highs. At the same time, the market’s sensitivity to policy and sentiment changes has markedly increased. For example, previous discussions about taxing AI companies triggered a drop of more than 7% in the ETF (EWY) in a single day, impacting the global chip sector and underscoring the amplification effect under high leverage conditions.

Korea’s financial regulators have held special meetings on the risks of leveraged ETFs and warned that, amid the expansion of high-risk products, the market may experience even more severe volatility under stressed scenarios. With $45 billion in leveraged funds continuously accumulating, structural liquidity risks in the market are gradually rising.

Risk Warning and DisclaimerThe market carries risks; investment requires caution. This article does not constitute personal investment advice and has not taken into account the special investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing accordingly is at your own risk. ```