This week, South Korea’s stock market, which has performed well globally but is highly volatile, is about to welcome its first batch of individual stock leveraged exchange-traded funds. Such financial instruments will simultaneously amplify investment gains and losses. The targets of the leveraged fund launched this time are two chip stocks, Samsung Electronics and SK Hynix. The product goal is to achieve income fluctuations that are twice the daily rise and fall of individual stocks. Both companies are core companies in the global artificial intelligence industry chain.
Analysts predict that South Korea’s more than 14 million retail investors will generate strong demand for such ETFs. However, intraday fluctuations of 5% in the Korea Composite Stock Price Index are becoming more frequent, and market frenzy may further intensify volatility.
Jung In Yun, CEO of Fibonacci Global Asset Management in Singapore, said: "Such funds will intensify the existing concentration risks of individual stocks. Stock index volatility will remain high, causing operational difficulties for long-term investors and becoming a structural risk in the Korean market."
Leveraged exchange-traded products use derivatives and swap contracts to bet on underlying assets, allowing investors to earn high returns from trading stock indices, individual stocks, bonds or commodities. However, in order to maintain the agreed leverage ratio, fund issuers often need to buy and sell assets quickly, which will also intensify the price fluctuations of popular stocks.
In recent years, Korean investors have had strong demand for leveraged products and have taken advantage of the global artificial intelligence boom to invest. This market has also pushed the Korean Composite Stock Index higher. Driven by the soaring stock prices of chip companies and domestic measures to improve shareholder returns, the index has more than tripled since the end of 2024.
South Korean regulators have previously banned the listing of such products due to their high-risk nature, and now hope to use this to repatriate retail funds flowing overseas.
South Korea's Financial Supervisory Service has warned that new products may amplify market fluctuations, thereby causing losses for retail investors. Traders are also worried that these two heavyweight stocks together account for nearly half of the Korean Composite Stock Index. After the listing of related funds, the Korean stock market with a market value of US$4.5 trillion will become increasingly dependent on these two leading stocks.
Yoon Jaehong, a partner at Petra Capital Management hedge fund in Seoul, said: "The fundamentals and profitability of the memory chip industry are improving, supporting the popularity of artificial intelligence chip stocks. However, the popularity of leveraged products and the high concentration of market funds in leading stocks will further increase short-term market volatility."
Although retail investment risks have increased and supervision has become more difficult, these funds will still receive a large amount of funds amid the boom in artificial intelligence stock investment.
The 14 Samsung and SK Hynix leveraged funds that will be listed by the end of May are expected to have net inflows of up to 5.3 trillion won, equivalent to US$3.5 billion. Mirae Asset Securities analyst Yoon Jaehong said that in the first two months of this year, 300,000 investors completed mandatory online training on leveraged product investment, which has exceeded the number for the whole of 2025.
Jung In Yun commented: "In the short term, the listing of the fund will boost market trading volume and continue the rising momentum of the artificial intelligence sector, but it will also make the trend of the Korean stock index more volatile. The artificial intelligence theme has become the core investment direction of retail investors, and market liquidity is highly concentrated in related stocks."