Goldman Warns New S. Korea Chip Leverage ETFs Could Be Stock Market Accelerators

The latest research released by the Goldman Sachs Sales and Trading team shows that the newly listed single leveraged exchange-traded funds (ETFs), tied to the semiconductor giants Samsung Electronics and SK Hynix in South Korea, may exacerbate the concentration of the country's stock market and amplify overall volatility.

Such single-stock leverage products were previously banned in South Korea, but under the global artificial intelligence boom, retail investors, eager to amplify their bets on the two core memory chip manufacturers, show an extremely high level of enthusiasm for such products.

Data published by Bloomberg indicates that the collective asset scale of these 16 leveraged products tied to Samsung Electronics and SK Hynix reached 4.3 trillion Korean Won, equivalent to about 2.8 billion US dollars, on the day of launch, which was Wednesday. Before this, driven by the market value of the two chip giants, South Korea's Kospi index had accumulated a 95% increase as of Wednesday this year, becoming one of the globally active equity markets.

Goldman Sachs pointed out that these new products require daily rebalancing to maintain a fixed leverage ratio. This mechanism forces funds to buy during market rises and sell during market falls, thus becoming an accelerator of volatility. This potential vulnerability was confirmed by the market performance on Thursday, when the South Korean Kospi index saw its largest drop of 4.7% intraday, mainly dragged down by a 6.4% decline in Samsung Electronics and a 4.1% decrease in SK Hynix, where one of the leveraged products tracking Samsung Electronics plunged almost 10%.

Currently, the South Korean market's dependency on these two leading stocks is increasing, with the two companies already accounting for more than 50% of the Kospi index's weight. Goldman Sachs warned in the report that if the semiconductor industry encounters a bearish shock in a particular area, the mechanized selling of these billions of dollars worth of funds will directly amplify the industry's shock amplitude twice, potentially triggering instability in the entire market index.