(July 6): South Korean lawmakers are increasingly sounding alarms over the risks of single‑stock leveraged exchange‑traded funds, with an opposition party member now calling for such products to be delisted.
On Monday, Ahn Cheol-soo, a lawmaker from the conservative People Power Party and former presidential candidate, called for strong corrective measures, including delisting, of Korean leveraged ETFs tracking Samsung Electronics Co and SK Hynix Inc. The Kospi index “has turned into a casino", he wrote in a Facebook post. The products are a “complete policy failure. Every day, it is eating away at trillions of won in corporate value and public wealth”.
His remarks add to a growing chorus of policymakers and investors concerned about the risks of such ETFs. Designed to deliver twice the return of the underlying stock, these products can quickly backfire. The funds’ mechanical rebalancing process forces them to buy more when prices rise and sell more when prices fall — potentially amplifying volatility.
Last week, Lee Eonju, a lawmaker from the ruling Democratic Party, warned in a Facebook post that retail investors’ growing use of these instruments as long-term holdings risks fuelling more speculative flows and ultimately harming both investors and the broader economy. She questioned whether brokerages rushing to list these ETFs had “nurtured another speculative tool within the domestic market".
In a written response submitted to another PPP lawmaker, the Bank of Korea said expanding investment in single‑stock leveraged ETFs could further heighten the market concentration of Samsung and SK Hynix, according to a July 5 report by Yonhap. The BOK plans to strengthen monitoring of the ETFs, Yonhap reported.
See also: Singapore now among top five financial hubs, researchers say
Together, the two companies now account for more than half of the Kospi’s total capitalisation. In July, they topped the list of the ten most traded securities on Korea Exchange, while four others were leveraged and inverse products tied to their performance.
The combined assets under management for all domestic single-stock leveraged ETFs have swelled to 14.05 trillion won, according to data compiled by Bloomberg.
Investors in the Korean chipmakers and related leveraged ETFs have generally enjoyed a strong year, with both Samsung and SK Hynix shares more than doubling this year. But scepticism over the durability of the artificial‑intelligence buildout has triggered recent selloffs in key suppliers. The 14 leveraged ETFs tracking the companies are all down this month, mirroring the chipmakers’ month‑to‑date declines.
See also: Asia financial firms plan regional expansion on market optimism, survey shows
The unease over single‑stock leveraged ETFs was evident last month, when the Financial Supervisory Service’s governor expressed regret for not blocking their launch earlier this year, blaming them for fuelling the Kospi’s volatility.
More than 90% of investors in the funds are retail traders, turning the specialised product into a political issue in a stock‑obsessed nation. A July 2 petition to the parliament calling for stability measures and curbs on these products drew thousands of signatures.
Uploaded by Arion Yeow
