South Korean retail investors are going wild! Samsung and SK Hynix leveraged ETFs attracted $2.8 billion on the first day, and Goldman Sachs proclaims the arrival of a “volatility accelerator”!

```

On the first day of listing, South Korea’s first batch of single-stock leveraged ETFs linked to Samsung Electronics and SK Hynix attracted over $2.8 billion in funds. However, Goldman Sachs’ sales department immediately warned that these products would serve as a “volatility accelerator” for the already fragile Korean stock market, a warning that quickly showed its power when the market plunged the following day.

According to a report from Goldman Sachs’ sales department, the total assets of the 16 leveraged ETFs linked to Samsung Electronics or SK Hynix reached 4.3 trillion KRW (about $2.8 billion) after they launched on Wednesday. Previously, such single-stock leveraged ETFs were explicitly banned in South Korea, but the new products have attracted a crowd of retail investors all seeking to amplify their exposure to the two chipmaking giants at the center of the global AI boom.

The warning was validated the day after listing. On Thursday, the Kospi index’s intraday drop widened to as much as 4.7%. Samsung Electronics fell 6.4%, SK Hynix tumbled 4.1%, and one leveraged product tracking Samsung Electronics dropped nearly 10% in a single day.

So far this year, the Kospi has rallied 95%, making it one of the world’s hottest stock markets, with gains mainly driven by the two major chipmakers. The two stocks now account for about 50% of Kospi’s weighting. The large-scale inflow into leveraged ETFs has fueled concerns over market concentration risk and amplified volatility.

Over $2.8 Billion Inflow on Day One; Retail Enthusiasm Overwhelms Regulatory Concerns

This batch of products is South Korea’s first batch of single-stock leveraged ETFs to be approved and listed; previously, such products were banned locally. According to an earlier Bloomberg report, before listing, the market anticipated net inflows could reach 5.3 trillion KRW (about $3.5 billion), backed by strong demand from more than 14 million Korean retail investors. The first day’s total asset size reached 4.3 trillion KRW, reflecting the market’s zealous enthusiasm for these products.

However, regulators have remained cautious. The Financial Supervisory Service of Korea had already explicitly warned that these new products could exacerbate market volatility and thereby harm the interests of retail investors. Analysts also pointed out that rebalancing mechanisms have resulted in abnormal trading accounting for as high as 60% of daily volume, demonstrating the substantial impact that large leveraged ETFs can have on intraday liquidity.

Rebalancing Mechanism Becomes ‘Volatility Accelerator’; Goldman Issues Warning

Goldman Sachs explained its concerns in detail in its report. Since leveraged ETFs must rebalance daily to maintain their leverage ratio, this mechanism forces buying into rising markets and selling into falling ones, thereby systematically amplifying price swings during trending markets. The report described such trading as “accelerators” of volatility.

The report also warned that each of the 16 products promises double the daily return of the underlying stocks, meaning that regardless of market direction, the funds’ mechanical operations will exert additional strain on market liquidity and further amplify liquidity crunch risk during extreme moves.

Less than 24 hours after Goldman’s report, related risks materialized. On Thursday, the Kospi index at one point plunged 4.7% intraday, Samsung Electronics fell 6.4%, SK Hynix tumbled 4.1%, and a leveraged ETF tracking Samsung Electronics fell close to 10% in one day. The amplifying effect of the rebalancing mechanism in a falling market became immediately apparent.

Goldman Sachs’ report also highlighted another structural concern: the market’s dependency on Samsung Electronics and SK Hynix will further deepen. These two stocks already account for about 50% of the Kospi, and introducing leveraged ETFs worth billions of dollars would significantly shorten transmission paths for potential shocks:

“Any impact on a particular segment of the semiconductor industry will now be doubly amplified by these billions of dollars’ worth of funds’ mechanical selloffs, potentially triggering wider index instability.”

Risk Warning and DisclaimerThe market carries risks; investments must be made cautiously. This article does not constitute personal investment advice, nor does it consider the individual investment objectives, financial situations, or needs of any particular user. Users should consider whether any opinion, viewpoint, or conclusion in this article fits their specific circumstances. Any investments based on this article are at the user’s own risk. ```