A group of new South Korean single-stock leverage ETFs have returned significantly in a short period of time, causing a significant loss to the Korean diaspora, which has raised the stake on the chip. The related products mainly track Tristar Electronics and SK Hercules, both of which are important in the global AI chip supply chain.
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According to the Bloomberg compilation, the largest SK Hercules-related leverage ETF management asset of about $3.4 billion has fallen by about 45 per cent since its listing in Seoul at the end of May, more than 60 per cent above the June high point.
At the end of May, more than a dozen single equity leverage ETFs were put on board at the end of the month, with total assets of approximately $3 billion. The introduction of such products in Korea is also related to the previous financial pursuit of similar tools in Hong Kong.
Leverage zooms up and down.
This type of ETF is expected to magnify the benefits at the time of the rise in the target, but also during the fall phase. In order to maintain the established leverage multiplier, issuers usually need to continue to buy and sell on the rise and fall, which may further exacerbate market volatility.
The Chief Executive Officer of Fibonacci stated that many of these products appeared to be used as a long-term investment tool rather than a short-term trading instrument, and thus suffered even more in the face of a sudden fall. He also said that the related losses could weaken the willingness and ability of the diaspora to continue buying semiconductor shares and make the subsequent rebound more dependent on inflows of foreign investment.
Monday, SK Hercules dropped 15% in a record number in Seoul. Markets fear that the previous strong increase in global AI equities may have been overstretched. As a result of this, the Korean stock market continued to weaken and the KOSPI index fell by over 5 per cent on the Tuesday plate.
Surveillance concerns about warming
With the associated ETFs leading to greater volatility and more visible losses, the decision of Korean regulators to approve their listing was questioned. The Republic of Korea has long banned such products, but has adjusted its policies during the boom phase in the market in the hope of attracting bulk money that would otherwise flow to the United States market and supporting the Korean Won.
Korea’s highest financial regulatory authority has expressed regret over the approval of such products for listing last month, indicating that there is growing concern about risk spillovers. However, the expected follow-up focus of the market is more likely to be on enhancing investor protection than on cutting off products altogether.
According to data compiled by Bloomberg's think tank, over the past month, South Korea's leverage and reverse exchange-traded products have attracted about $3.8 billion in inflows, mainly to a single equity fund that tracks SK Hercules and Samsung electronics.
Korea’s Rising Economic Growth Expectations
While capital markets were under pressure from chip stock volatility, his Government was more optimistic about economic prospects. On Tuesday, the Korean government released its economic policy strategy for the second half of the year, which increased the economic growth forecast from 2 per cent to 3 per cent, up from 2.6 per cent given by the IMF last week.
According to the Korean Government, the expansion that began in the second half of last year will continue, and the demand for AI chips will continue to strain the conflict in the Middle East, and supplementary budgets will also help to mitigate the impact of rising energy costs. Officially, it is also expected that the current account surplus will reach a record $290 billion this year, driven mainly by the rise in the price of chips.
In terms of prices, the Korean Government has indicated that energy and food remain the main sources of risk and that inflation is likely to remain high at 2.6 per cent this year. In response to the financial market, Korean officials stated that they would continue to take measures to stabilize the Korean Won and to promote reforms to enhance its convertibility.