South Korea to List Leveraged ETFs of Samsung and SK Hynix, Daily Fluctuations Could Reach ±60%

South Korea will officially launch its first batch of single-leveraged and inverse ETFs linked to Samsung Electronics and SK Hynix this Wednesday. According to documents published by the Financial Services Commission and the Financial Supervisory Service of South Korea, eight asset management companies, including Samsung AM, Mirae Asset, Korea Investment, KB, Shinhan, Hanwha, Kiwoom, and Hana, will simultaneously list 16 related products on the Korean stock market.

The launch of these products comes at a time when South Korean individual investors are increasingly interested in leveraged stock-linked products. Regulators hope to attract some of the overseas trading retail funds back to the domestic market through this initiative. Samsung Electronics and SK Hynix, as the two largest market capitalization stocks in South Korea, are also at the forefront of the global surge in demand for artificial intelligence chips.

South Korea currently has over 14 million individual investors. Analysts estimate that, driven by the continued fervor for artificial intelligence investments, demand for these new products will be very strong, with inflows into leveraged ETFs linked to Samsung Electronics and SK Hynix expected to reach 53 trillion won (about 3.5 billion USD).

Mirae Asset Securities will also simultaneously launch two related ETNs. Whether they are ETFs or ETNs, they further package South Korea's two core semiconductor giants into high-volatility trading tools, amplifying potential returns while also increasing the risk of losses.

Theoretical daily price fluctuation can reach ±60%

The mechanism of leveraged ETFs determines that the risks do not only come from the direction of stock prices. They amplify the daily performance of the underlying assets through derivatives and other financial instruments, so when the volatility of the underlying stocks intensifies, the net value of the products may also undergo more drastic intraday changes.

South Korean financial regulatory officials caution that even with a small investment in leveraged ETFs, profits and losses will be amplified, and there are various risk factors involved, making them unsuitable for investors with lower risk tolerance or insufficient understanding of investment risks.

Under the mechanism where the daily price fluctuation limit of individual stocks in South Korea is ±30%, the maximum theoretical daily loss of a 2x leveraged ETF can reach 60%. The regulatory department used compound interest decay as an example to illustrate: if the underlying stock first rises 30% and then falls 30%, the price will fall from 100 points to 91 points, with a cumulative loss of 9%; whereas with 2x leverage, first rising 60% and then falling 60%, the cumulative loss will expand to 36%.

Furthermore, the regulatory report also warns investors to be vigilant about the concentrated risks of individual stocks. Samsung Electronics and SK Hynix are highly sensitive to the global semiconductor industry cycles, and short-term funds may show a significant concentration of inflows or outflows due to specific favorable or unfavorable news or earnings releases, amplifying the product's volatility.