As the KOSPI has swung sharply higher and lower in recent sessions, single-stock leverage exchange-traded funds (ETFs) have been singled out as the main culprit behind the volatility. Financial authorities and the industry are moving quickly on regulatory discussions, but analysts in the securities sector say leverage ETFs are less a cause of the market's swings than an "amplifier" that magnifies volatility that has already grown.
Trading Far More Active Than in U.S.; Regulatory Debate Gains Steam
According to Korea Investment & Securities and the financial investment industry on the 14th, trading value of domestic single-stock leverage ETFs stands at 20% to 30% of the underlying asset's trading value, up to six times the U.S. level of 4% to 5%. In response, financial authorities and the industry have begun preparing countermeasures amid concerns over market concentration.
According to a report titled "Understanding Leverage ETFs: Examining Their Impact on Volatility Expansion," released by Korea Investment & Securities the same day, as of the 10th the market capitalization of the SK hynix and Samsung Electronics leverage ETFs stood at 0.32% and 0.18% of their underlying assets, respectively, showing little difference from the U.S.'s Micron (0.55%) and Tesla (0.29%).
Trading volumes, however, differed. From June 1 to July 10, trading value of the SK hynix and Samsung Electronics leverage ETFs reached 30.38% and 20.07% of the underlying assets' trading value, respectively. By contrast, Micron and Tesla stood at just 5.36% and 4.31%.
With leverage ETF trading so heavily concentrated in the domestic market, the Korea Financial Investment Association convened an emergency meeting of major securities firm CEOs the same day to discuss countermeasures. The aim was to gather industry views ahead of the "F4 meeting" on the 16th, which will bring together the Ministry of Economy and Finance, the Financial Services Commission, the Financial Supervisory Service, and the Bank of Korea.
Lee Chan-jin, Governor of the Financial Supervisory Service, also emphasized investor protection at a recent meeting with asset management firm CEOs, saying, "As ETFs have grown into a representative indirect investment product, the responsibility of asset managers has also grown." Last month, he had expressed concern over the introduction of single-stock leverage ETFs, saying, "We should have blocked it even if it meant lying down in the way."
"An Amplifier Rather Than a Cause"; The Real Variable Is AI Investment
The securities sector, however, said the recent stock market volatility is difficult to explain with leverage ETFs alone.
Yeom Dong-chan, a researcher at Korea Investment & Securities, said, "Single-stock leverage ETFs play a role in magnifying existing movements rather than being a cause of volatility."
Leverage ETFs conduct rebalancing trades near the market close, adjusting their holdings to meet target returns. The structure calls for additional buying when share prices rise and selling when they fall. As a result, such trades are typically concentrated in the latter part of the session, after 3 p.m.
Recent KOSPI volatility, however, has expanded more in the morning hours than just before the close. Korea Investment & Securities also compared trading volumes around May 27, when single-stock leverage ETFs were listed, and found that while late-session trading increased for both Samsung Electronics and SK hynix, it is difficult to explain the sharp intraday swings across the whole session.
Rather, the recent market unease is more closely tied to worsening investor sentiment toward the global semiconductor sector, the firm explained. As doubts have grown over the sustainability of hyperscalers' investment in AI infrastructure, domestic semiconductor stocks such as Samsung Electronics and SK hynix—which had risen sharply on expectations for data center demand—were also shaken, and this combined with closing-session rebalancing demand to further amplify volatility.
Yeom said, "It is appropriate to view this as global semiconductor companies' volatility expanding first amid concerns over the sustainability of AI investment, with leverage ETF rebalancing then magnifying it further."
Ultimately, regulatory discussions surrounding single-stock leverage ETFs are likely to continue, but growing support is emerging for the analysis that behind the recent KOSPI swings lie larger market currents—skepticism over AI investment and shifts in the global semiconductor cycle.
