South Korean exchange data released on June 25 shows that as of June 23 (when KOSPI plunged nearly 10% that day), the combined assets under management (AUM) of 14 multi-leveraged ETFs tracking Samsung Electronics and SK Hynix stood at about 16 trillion won, with a single-day trading volume of 15.7 trillion won. Analysts pointed out that the "short gamma effect" caused by the mechanical rebalancing of leveraged ETFs exacerbated the day's volatility.
Korea Exchange Data: 14 Leveraged ETFs, 16 Trillion AUM, 15.7 Trillion Trading Volume
According to data released by the Korea Exchange on June 25, the key figures for June 23 are as follows: 14 multi-leveraged ETFs tracking Samsung Electronics and SK Hynix; total AUM of approximately 16 trillion won; single-day trading volume of 15.7 trillion won (roughly equal to the entire AUM); both related stocks fell about 12% during the trading session; net asset value of the related ETFs fell nearly 25%.
Samsung Electronics and SK Hynix account for nearly half of KOSPI's market capitalization, and their net profit share exceeds 70%, making their influence on the index highly concentrated.
Short Gamma Mechanism: Explaining the Self-Reinforcing Selling Cycle of 2x Leveraged ETFs
"Short gamma" originally refers to an options market concept where buying increases as the stock price rises and selling increases as the stock price falls; leveraged ETFs have a similar structure. Taking a 2x leveraged ETF as an example: after purchasing 100 million won worth, the ETF must hold 200 million won in stocks or futures. When the underlying asset falls, the ETF must reduce its position to maintain the target leverage ratio. This creates a self-reinforcing cycle: "stock price declines → ETF assets decrease → holdings reduce → further selling → stock price falls again."
Analyst Assessment: Self-Reinforcing Structure and Supply-Demand Driven Market Volatility
Noh Dong-ji, a researcher at Shinhan Investment Securities, said: "When the price of the underlying asset falls, a 2x leveraged ETF must reduce its spot and futures positions to achieve the target leverage ratio. Although this is not exactly the same structure as the short gamma strategy in the options market, its impact on the market is similar."
He added: "A self-reinforcing structure may emerge, where falling stock prices trigger more selling, which in turn pulls stock prices down again." He also said, "The recent sharp decline can be seen as primarily driven by supply and demand dynamics rather than corporate earnings."
Ha Jae-seok, a researcher at NH Investment Securities, explained: "Recently, driven by individual investors, the market for individual stock leveraged ETFs on Samsung Electronics and SK Hynix, as well as ETFs focused on large semiconductor companies, has grown rapidly. As the concentration of ETF supply and demand increases, the likelihood of continued strength in large-cap stocks increases, and market volatility will also expand."
Frequently Asked Questions
Does the short gamma effect necessarily mean increased market volatility?
According to analysts, this effect is not inevitable, but it becomes evident under specific conditions (a sharp decline in the underlying asset and a sufficiently large ETF scale). The unique reason for Samsung Electronics and SK Hynix is that their combined market cap accounts for nearly half of KOSPI, and their net profit share exceeds 70%, allowing the impact of ETF rebalancing to be directly transmitted to the entire index.
Was the sharp decline in KOSPI on June 23 mainly caused by ETF rebalancing?
According to analyst Noh Dong-ji's assessment, "the recent sharp decline can be seen as primarily driven by supply and demand dynamics rather than corporate earnings," indicating that the supply-demand imbalance caused by ETF rebalancing was a significant factor, but the article does not rule out the influence of other market factors.
Which underlying assets are Korean ETFs concentrated on?
According to the report, domestic stock ETFs have net assets exceeding 260 trillion won (up 78% year-on-year), with ETF trading volume accounting for over 60% of KOSPI, and highly concentrated in products related to Samsung Electronics and SK Hynix. This concentration means that volatility in the semiconductor sector can be amplified and transmitted to the overall market through the ETF mechanism.
