The leverage around SK Hercules, ETF, is evolving from a single trading tool to an important force that affects the volatility of science and technology in Korea and worldwide. Bloomberg reported that the ETF, which was launched by only twice the leverage of the South East British, had been on the line for only nine months and had risen to about $13 billion, making it one of the largest single equity leverage funds of its kind in the world.

The core characteristic of these products is to maintain fixed leverage multiples per day. When the subject matter of equity prices fluctuates significantly, the Fund needs to centralize its tailings, and banks, marketers and hedge funds need to synchronize their financing with risk hedges. As funds continue to flow, the related transactions no longer affect Hercules alone, but also begin to spread to the South Korean equity and global science and technology units.

The scale of the fund has been rewritten by the trade rhythm

It was reported that on more volatile trading days, the ETF and its equivalents were traded up to two thirds of the total SK Hercules stock. For a large chip company, this ratio is sufficient to change the structure of the transaction on board.

The current weight of KK Hercules in the Kospi index in Korea is about 28 per cent and that of Tristar electronics about 29 per cent. The combined high share of the two companies makes Hercules ' stock price volatility no longer a stock event, but also rapidly transmits to South Korea ' s large discs and global technology panel sentiment.

A number of traders are now set up early in the afternoon, waiting for leverage funds to rearrange their tailings and then level them off before closing. For many trading houses, estimating the size of the ETF's silo on that day has become as important as judging the basics of the company.

Bank hedge costs are rising.

In order to maintain the operation of the product, banks usually provide leverage through swap agreements to hedge the risk of stocks, futures, options and exotic derivatives. The cost of the system is rising rapidly as the Fund expands.

It has been reported that the banks that provide part of the swap have faced financial and risk limits and have begun to reduce their exposure to Hercules and to raise fees. The annualized cost of clikets derivatives used to protect against the collapse of Hercules stock prices has risen from about 3 per cent in March to over 10 per cent.

  • ETF size approximately $13 billion
  • The annual return is about 718%.
  • Theorem doubles in return for about 921%.

This is also a direct drag on the Fund ' s performance. The Bloomberg industry study estimated that, as at 29 June, the ETF had a return of approximately 718 per cent during the year, which was less than the theoretical double of the daily repo of approximately 921 per cent. The gap between the two reflects the fact that the costs of financing and hedging are eating up the gains.

It's possible to zoom in on the fall.

Markets are more concerned about passive sales, not the upswing phase, but the dynamic energy reversal. Leverage ETFs need to be rebalanced on a daily basis in accordance with established rules, and once the target continues to fall, the Fund may continue to sell in weaker markets, further magnifying the decline.

According to reports, the Korean Kospi index dropped by 10 per cent last week and delayed a 3 per cent decline in the NASDAQ index. The strategists estimate that for every 1% of the market, leverage ETF could generate about $9 billion in warehouse demand. This pressure may also be transmitted to the stock-indicated futures and other derivatives market if Hercules continues to fall.

South Korea's regulatory level has also been able to track only indigenous cores for recent approvals. ETF has expressed concern that such products could increase market volatility. The data show that more than 90 per cent of the relevant fund investors are dispersed.

  • 1 per cent market fluctuations
  • Leverage ETF or bring in about $9 billion in silos.
  • Over 90% of the Korean investors in related products are dispersed.

Additional information:The report mentions that SK Hercules plans to go to the United States on a scale of about $29 billion. If this arrangement moves forward, equity liquidity is expected to increase and partially mitigate the impact of leverage ETF flows on a single market.