Korean stock market shows abnormal concentration: Two chip stocks plus leveraged ETFs dominate 70% of trading volume.

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The combined trading volume of Samsung Electronics and SK Hynix, two chip stocks, together with leveraged ETF products tracking them, now accounts for over seventy percent of South Korea's stock market volume. This highly concentrated structure is pushing the world's strongest-performing market into violent turbulence.

According to Bloomberg on Thursday, market volatility has sharply increased since the launch of these leveraged ETFs in late May. The Korea Composite Stock Price Index closed down 5.4% on Wednesday, falling 20% from its June peak, officially entering a technical bear market. So far this year, the market has triggered six full-market trading halts, accounting for half the total since 2000. South Korea's top financial regulator recently also expressed regret publicly, acknowledging that the related products have brought negative side effects.

This round of leveraged bets, led by retail investors, was originally intended to amplify gains with the epic surge in chip stocks—at their peak, both stocks were up more than twofold from the start of the year.However, as concerns over AI’s heavy capital investment intensify, chip stocks have swung wildly with every supply-chain development, and the volatility in leveraged products is amplified, causing bets to quickly backfire.

Extreme Concentration, Regulatory Pressure Mounts

According to CL Securities Korea, on the day before the leveraged ETF launch (May 26), Samsung and SK Hynix’s turnover already accounted for 31% of the total market. After adding the ETF volumes, this ratio climbed as high as 84% in late June and remained at 73% as of Tuesday this week, highlighting continuing concentration deterioration.

The abnormal phenomenon has sparked criticism of regulators. Opposition lawmakers have publicly called for mandatory delisting of these products. The original aim for these leveraged ETFs was to direct more retail funds back to the domestic market and curb further weakness in the Korean won, but their actual effect has run counter to policy goals.

In fact, even before single-stock ETFs were approved, many investors and analysts warned that the Korean market’s heavy reliance on these two chip stocks meant severe risks if the AI boom faltered. Together, Samsung and SK Hynix comprise 54% of the Kospi benchmark index weight.

Self-Reinforcing Leveraged Mechanism, Volatility Spiral Hard to Contain

Ian Samson, portfolio manager at Fidelity International, pointed out that the mechanism of leveraged ETFs itself aggravates volatility: "To maintain constant leverage, more assets must be bought when prices rise, and more must be sold when prices fall. Retail investors' participation and the new leveraged products only further amplify the volatility already driven by massive fundamental uncertainty in Korea’s semiconductor industry."

This feedback loop has made abnormal single-day swings of over 5% increasingly common. On Tuesday, Kospi plunged more than 8% intraday, triggering a market-wide circuit breaker for the sixth time this year.

CLSA Korea analyst Jongmin Shim stated that the extreme concentration in the two chip stocks and their leveraged products"tends to intensify short-term price swings and has suppressed broader market breadth and sentiment in recent weeks." However, he also pointed out:"I prefer to interpret the current correction in the context of a bull market, rather than as the beginning of a systemic downturn."

Currently, the Kospi has pulled back 20% from its June peak, officially entering a technical bear market. Whether the market can rebuild confidence against the backdrop of continued chip sector uncertainty remains to be seen.

Risk Warning and Disclaimer ClauseThe market contains risks and investment should be made cautiously. This article does not constitute personal investment advice and does not take into account specific investment objectives, financial condition or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article suit their particular circumstances. Investment according to this information is at your own risk. ```