Samsung, SK Hynix and Their Leveraged ETFs Account for Over 70% of Korean Stock Trading Volume

In South Korea's $4.3 trillion stock market, retail investors' growing obsession with leveraged ETFs is triggering serious market imbalances.

Latest data shows that the combined trading volume of leveraged ETFs tracking South Korea's two chip giants—Samsung Electronics and SK Hynix—along with the stocks of the two companies themselves, now accounts for over 70% of the total trading volume in the entire South Korean stock market.

This extreme concentration has worsened significantly in recent weeks. According to data from CLSA, the day before the launch of a 2x daily leveraged ETF tracking the two chipmakers at the end of May, Samsung and SK Hynix accounted for 31% of total Korean stock trading volume. However, following the product's launch, that figure surged to 84% by late June and remained as high as 73% as of this past Tuesday.

Given that Samsung and SK Hynix together represent 54% of the benchmark Kospi index, their price movements have a decisive impact on the broader market.

Benefiting from the artificial intelligence (AI) boom, the share prices of these two chipmakers more than tripled from their lows this year, attracting retail investors eager to amplify returns through leveraged products. However, as market skepticism grows over massive AI investments and chip stocks remain highly sensitive to supply chain news, the forced buying and selling mechanisms of leveraged ETFs are further amplifying volatility.

Ian Samson, a portfolio manager at Fidelity International, pointed out that leveraged ETFs must buy more when prices rise and sell more when prices fall to maintain constant leverage. Combined with fundamental uncertainties facing South Korea's semiconductor industry, this dynamic only intensifies market turbulence.

This anomaly has drawn criticism toward regulators. Although these high-risk products were initially approved to keep retail capital within the domestic market and slow the won's depreciation, South Korea's financial regulators have recently expressed regret over their negative side effects, with opposition lawmakers even calling for these ETFs to be delisted.

Currently, the Kospi index has fallen 20% from its June peak, entering a technical bear market, and plunged 5.4% in a single day on Wednesday.

While CLSA analyst Jongmin Shim believes the current situation is merely a correction within a bull market rather than the start of a systemic collapse, he also acknowledges that the excessive concentration of capital in the two chip stocks and their leveraged products has severely undermined market breadth and investor sentiment.