South Korean regulators announced a policy review of single-stock leveraged ETFs on July 10, one and a half months after the products launched on May 27. The four most actively traded leveraged ETFs tracking Samsung Electronics and SK Hynix declined between 21.7% and 25.8% from their listing-day closing prices through July 10, resulting in significant investor losses despite surging trading volumes. Kim Yong-beom, Director of the Presidential Policy Office, stated the government will examine market impacts at an F4 (Finance4) meeting and implement necessary adjustments. The review follows widespread fund outflows from existing ETF products and mounting concerns over market volatility amplification, with individual net buying of non-single-stock ETFs plunging from 551.9 billion won during April 24-May 26 to 116.4 billion won during May 27-June 2. The single-stock leveraged ETF policy was introduced by the government as part of capital market activation measures, but has faced criticism from Financial Supervisory Service Governor Lee Chan-jin and warnings from the Capital Market Institute regarding structural rebalancing risks.
Four Samsung and SK Hynix Leveraged ETFs Decline 21.7%-25.8% Through July 10
According to Korea Exchange data on July 11, all four of the most actively traded single-stock leveraged ETFs fell below their listing-day closing prices from May 27 through July 10. TIGER Samsung Electronics Leverage declined 25.8%, while KODEX Samsung Electronics Leverage dropped 25.5%. TIGER SK Hynix Leverage fell 22.1%, and KODEX SK Hynix Leverage decreased 21.7%.
Despite price declines, trading activity remained robust. July average trading volumes increased compared to June for three of the four products. KODEX Samsung Electronics Leverage rose 2.4%, TIGER SK Hynix Leverage jumped 40.9%, and KODEX SK Hynix Leverage surged 62.7%. Only TIGER Samsung Electronics Leverage saw a volume decline. Securities industry sources attributed continued trading to bargain-hunting and short-term rebound speculation.
The launch of leveraged ETFs coincided with a sharp contraction in retail buying of existing ETF products. Individual net purchases of all ETFs excluding single-stock products dropped from a daily average of 551.9 billion won during April 24-May 26 (pre-launch) to 116.4 billion won during May 27-June 2 (first week post-launch). Domestic semiconductor ETFs reversed from 171.7 billion won in daily net buying to 286.6 billion won in net selling over the same period.
Samsung Electronics and SK Hynix Stock Prices Fall Since May 27 Launch
The underlying stocks tracked by the leveraged ETFs also declined during the period. From May 27 through July 10, Samsung Electronics fell 7.2% from 307,000 won to 285,000 won. SK Hynix dropped 2.8% from 2,243,000 won to 2,180,000 won. Among the top 10 KOSPI stocks by market capitalization, only three — KB Financial, SK Square, and Samsung Biologics — posted gains.
Other large-cap stocks experienced steeper losses. Hyundai Motor declined 32.8% from 681,000 won to 457,500 won. LG Energy Solution fell 15.0% from 383,500 won to 326,000 won.
KOSDAQ volatility was more pronounced. Ecopro BM dropped 43.0%, Ecopro declined 40.0%, Rainbow Robotics fell 38.0%, Lino Industrial decreased 28.0%, Kolon TissueGene dropped 18.6%, and Alteogen declined 16.2%. Only PSK and Wonik IPS among top market-cap stocks avoided losses.
A securities industry official stated, "Single-stock leveraged ETFs are products that amplify the gains of underlying assets, not products that lift stock prices. Since both Samsung Electronics and SK Hynix traded lower than at listing, investment performance naturally fell short of expectations."
Presidential Policy Office Announces F4 Review on July 10
Kim Yong-beom, Director of the Presidential Policy Office, addressed volatility concerns at a Blue House briefing on July 10. He stated, "Because this is a newly introduced system, we plan to closely examine its market impact during the one-and-a-half-month operation period at the F4 (Finance4) meeting." Kim added, "If necessary improvements are identified through review and discussion, we will make decisions accordingly."
Critics characterized the government response as reactive, noting that concerns over fund concentration and volatility emerged immediately after launch but formal review began only after investor losses materialized.
Financial Supervisory Service Governor Lee Chan-jin expressed public regret about the policy approval at a meeting last month, stating, "I regret a lot that I should have somehow blocked it, even if I had to lie down to stop it."
The Capital Market Institute analyzed that "due to the structural characteristics of single-stock leveraged ETFs, rebalancing trades have the potential to amplify market volatility." The institute emphasized, "As assets under management (AUM) grow, rebalancing trades also increase proportionally. In future phases of expanding volatility, market influence could grow further, requiring continuous monitoring."
FAQ
What happened to single-stock leveraged ETFs in South Korea between May 27 and July 10?
The four most actively traded single-stock leveraged ETFs tracking Samsung Electronics and SK Hynix declined between 21.7% and 25.8% from their May 27 listing-day closing prices through July 10, according to Korea Exchange data released July 11. TIGER Samsung Electronics Leverage fell 25.8%, KODEX Samsung Electronics Leverage dropped 25.5%, TIGER SK Hynix Leverage declined 22.1%, and KODEX SK Hynix Leverage decreased 21.7%.
Why did the South Korean government announce a policy review on July 10?
Kim Yong-beom, Director of the Presidential Policy Office, announced on July 10 that the government will examine the market impact of single-stock leveraged ETFs at an F4 (Finance4) meeting due to investor losses and concerns over market volatility. Individual net buying of non-single-stock ETFs dropped from 551.9 billion won daily average during April 24-May 26 to 116.4 billion won during May 27-June 2, indicating fund outflows from existing products following the leveraged ETF launch.
