SK Hynix, Samsung Electronics Hit Hard: Single-Stock Leveraged ETFs Plunge Sharply — Experts Warn U.S. Investors

South Korea has recently seen extreme volatility in single-stock leveraged ETFs tracking SK Hynix and Samsung Electronics, drawing heightened attention from markets and regulators. This has sparked concerns on Wall Street that the rapidly expanding U.S. market for single-stock ETFs could be accumulating similar risks amid the AI investment boom.

A single-stock ETF uses derivatives such as options and futures to amplify daily returns, typically offering 2x or higher leverage. While this can generate higher returns when the underlying stock rises, it also leads to much steeper losses when prices reverse. As a result, these products are widely considered suitable only for short-term trading, not long-term holding.

Recently, a sharp correction in SK Hynix's stock price intensified the decline in related leveraged ETFs. Data shows that SK Hynix's U.S.-listed shares fell nearly 20% over the past five trading days, while the Leverage Shares 2X Long SK Hynix Daily ETF, which tracks 2x daily returns, plunged 37%—almost double the loss of the underlying stock.

This correction has also impacted investors in Korean tech stock ETFs, including the Roundhill Memory ETF and the iShares MSCI South Korea ETF, which holds significant positions in both SK Hynix and Samsung Electronics.

South Korea's financial regulators have announced plans to tighten rules on leveraged ETFs to curb excessive market volatility. According to local media, authorities are evaluating stricter limits to reduce the severe swings these products cause in the Korea Composite Stock Price Index (KOSPI).

Despite this, demand for single-stock leveraged ETFs in the U.S. continues to grow. In recent years, more and more popular stocks have launched related ETFs, with some providers quickly rolling out leveraged ETFs shortly after a company's IPO. For example, within a week of SpaceX going public, multiple single-stock ETFs tracking its share performance entered the market—highlighting the persistent strength of speculative demand.

Steve Sosnick, Chief Strategist at Interactive Brokers Group (IBKR-US), noted rising client enthusiasm for leveraged products. According to company data, five of the 25 most actively traded symbols last week were leveraged ETFs, including those tracking Sandisk (SNDK-US), Micron Technology (MU-US), the Philadelphia Semiconductor Index, and the Nasdaq-100 Index.

However, market analysts are increasingly concerned about the risk that single-stock ETFs could amplify market swings. Scott Chronert, Head of U.S. Equity Strategy at Citi Research (C-US), pointed out that while the S&P 500 index appears strong on the surface, individual stocks are experiencing extreme volatility, with many large tech stocks swinging far more than the index itself.

Matthew Miskin, Co-Chief Investment Strategist at John Hancock Investments under Manulife Investment Management, believes the market is currently flooded with excessive optimism. He noted that the return of large IPOs, corporate debt issuance for AI investments, and the rapid growth of leveraged ETFs all signal rising investor risk appetite.

Miskin described the current market as a high-speed train powered by momentum. But when sentiment shifts, he warned, high-leverage products could act as catalysts that magnify downside moves. He sees the rapid growth of leveraged ETFs as a classic sign of a late-stage bull market.

Market participants emphasize that single-stock leveraged ETFs are designed to track daily returns. Even if the underlying stock remains flat over the long term, daily rebalancing and compounding effects can cause long-term performance to deviate significantly from investor expectations. As a result, issuers widely warn that these products are unsuitable for buy-and-hold strategies.

Analysts argue that the painful experience of South Korean investors in SK Hynix and Samsung Electronics leveraged ETFs serves as a global warning amid the AI investment frenzy. As U.S. markets continue to see strong capital flows into AI-related stocks, semiconductor equities, and single-stock ETFs, heightened volatility could cause high-leverage products to amplify losses. Investors must pay closer attention to risks, not just the high returns seen during bull markets.