Exchange-traded funds have been a fixture of financial markets since the 1990s as a popular low-cost way for investors to buy baskets of stocks and trade them like shares on a brokerage account.
Leveraged ETFs, which promise to multiply the daily returns of their targets, have been around for two decades and are now exploding in popularity, particularly around the AI theme and some of the companies at the forefront of hardware sales.
Single-stock leveraged ETFs, which launched in the US in 2022, are booming in Asia as a way to juice bets on South Korean chipmakers Samsung Electronics and SK Hynix and are driving so much money they are reshaping the market, lifting volatility and worrying regulators.
Leveraged ETFs use futures or swaps to replicate a bet using borrowed money to multiply the daily return of their target by typically two, three or even five times — amplifying gains on the way up and losses on the way down.
Single-stock leveraged ETFs launched in May in South Korea, though two-times leveraged ETFs tracking Samsung (7747) and SK Hynix (7709) listed in Hong Kong in 2025 and have seen their assets under management balloon. Assets in the latter fund tracking SK Hynix have surged 20 times since the start of the year.
When investors buy a unit in these products, the funds need to buy shares in the underlying stocks as well as derivatives to leverage the performance. If the stock moves up, the ETF needs to buy more and if it falls it must sell.
Those daily rebalancing trades generate a feedback loop, exacerbating moves in either direction and ramping up volatility.
Asset managers selling the products say they are aimed at professional traders and sophisticated investors, with many products plastered in disclaimers stating they are not suitable for buy-and-hold investors.
The expense of maintaining a leveraged position erodes returns over time, meaning they often diverge substantially from their target investments.
Nevertheless, many retail investors have been happy to pile in to chase the gains.
In South Korea, everything is amplified by the sheer size of the ETF flows and of the stocks in question, with SK Hynix and Samsung each commanding trillion-dollar market caps and comprising more than half of the benchmark KOSPI index.
The combination is "creating an incredible feedback loop that's driving volatility in the semiconductor space," said Michael Green, chief strategist and portfolio manager for Simplify Asset Management. "That's driving elevated levels of volatility on a single-stock level."
The Hong Kong-listed twice leveraged ETF tracking SK Hynix offered by fund manager CSOP has grown into the biggest fund of its type globally, with HK$51.8 billion (US$6.6 billion) in assets.
Its flows helped SK Hynix's stock price soar, but lately the daily rebalancing at the open and close of trade is driving wild swings in the price and the broader KOSPI.
Together with Samsung, the two stocks account for more than 80 percent of the trading volume of the KOSPI on some days this year, according to calculations by Reuters staff.
The KOSPI’s volatility index stood at 89 on Thursday, after hitting a record high of 97.99 on June 29 and well up on 28.85 at the end of 2025.
SK Hynix's Nasdaq debut this month has injected another source of volatility, with a wave of new leveraged ETF listings in the US
South Korea's top financial regulator, the Financial Services Commission, on Thursday announced a series of new measures on single-stock leveraged ETFs including banning promotional events and advising against new launches.
Last month, the Financial Supervisory Service, a market watchdog, made a rare mea culpa, saying the approvals for the funds had been "prepared hastily" as part of efforts to lure back retail investors from US markets and curb weakness in the Korean won.
Reuters
