The AI Concept Unit continues to grow and is moving the leverage level of the United States and Korean stock market to a higher level. The United States financing balance, leverage ETF scale and share financing costs have increased simultaneously in the recent past, and the Korean market has been the first to experience significant shocks. Many agencies believe that, if funds begin to withdraw, both the Science and Technology Unit and the bulk of the fund may be under greater downward pressure.

U.S. financing balances up to high levels

Data from the United States Financial Regulatory Authority indicate that the United States share financing balance rose to $1.4 trillion in May, an increase of 54 per cent over the same period. Meanwhile, FactSet statistics show that between the end of March and the beginning of June, the total asset size of the leveraged ETF increased from approximately $115.0 billion to $220 billion, almost doubling in a short time.

The main financial flows were to the Science and Technology Unit, the Semiconductor Index, and a number of popular products, such as Tesla and Weeda. Part of the single-equity or sector-leverage funds amplified their gains during the upswing phase, but the fall will also be magnified at the same time as the backsliding, resulting in a marked increase in market volatility.

Derivatives trading for cyclical fluctuations

Barclay Analyst Alexander Altmann states that since the end of March, leveraged funds have accumulated some $30 billion in derivatives linked to individual shares and indices. Marketers need to buy their shares for hedge risks, a process that further boosts the growth of technology units and semiconductors.

However, this mechanism works in reverse when markets are weaker. After falling equity prices, the net value of leveraged funds may have been reduced, thus continuing to press down stock prices and bringing more foreclosures and sales. The ETF.com research director, Dave Nadig, warned that such pro-cyclical trading effects would become stronger as more and more funds flow to single-stock products.

The South Korean market started with a severe shock.

The Korean market has recently been considered a round of stress tests. KOSPI has grown significantly since this year, mainly driven by chip units such as Tristar Electronics and SK Hercules. However, with high concentration holding and high leverage, market volatility has increased rapidly.

KOSPI was reported to have dropped 10 percent a single day last week and triggered the melting, then rebounded in a short time and then again. China estimates that the South Korean market has now grown to 27.1 trillion won in broad terms, and that the in-field leverage is in the range of 2 to 5 times. The head of the Korea Financial Supervisory Authority also acknowledged that the high risk of leveraging single-equity funds had created significant pressure on the diaspora.

Financing makes the market more vulnerable.

In addition to increased leverage, financing costs are also rising. Morgan Stanley noted that the AXW futures spread, which measures the cost of equity financing, has recently risen to a high of up to five years, indicating that the dependence of marginal buyers on borrowing funds is still growing, but the financing conditions have become more expensive and tight.

Federal Reserve data from New York indicate that, as of early June, United States-level traders held interest-type asset exposures of $223.0 billion, including through buy-backs. Morgan Stanley also referred to the fact that, over the past three months, the excess proceeds from the Standard 500 had been concentrated mainly on the information technology block, suggesting that the current round was more dependent on a few plates and leverage.

Once financing continues to tighten and new purchases are weakened, market reversals may trigger deleveraging, and sales pressure will be amplified. It is argued that such a ripple effect would allow the S & T unit to fluctuate to wider markets.