Important Change! South Korea Launches Individual Stock Leveraged ETF for the First Time, First Batch of Targets Lock in Samsung and SK Hynix

“Daily Economic News” reporters have learned that a new leveraged exchange-traded fund (ETF) tracking individual stocks of Samsung Electronics and SK Hynix is expected to launch in Korea as early as May, providing investors with twice the daily returns of these two chip giants.

According to local media reports, Korean financial regulators and industry insiders recently revealed that a leveraged ETF based on Samsung Electronics and SK Hynix stocks is imminent. This new product will aim for daily returns of plus or minus two times the underlying stocks’ performance, closely tied to their volatility. It also marks a shift from traditional broad-market index tracking leveraged ETFs to more focused investment tools.

Market sources also indicated that detailed implementation rules are expected to be announced within this month, clarifying regulations on market capitalization thresholds, trading volume requirements, and derivatives hedging conditions. Major asset management firms like Samsung Asset Management and Korea Future Asset Global Investments are preparing related products.

“Daily Economic News” reporters learned that previously, South Korea prohibited single-stock leveraged ETFs, prompting investors to turn to similar products listed overseas. Products such as Southbound East Asia’s SK Hynix Daily Leverage (2x) and Samsung Electronics Daily Leverage (2x) have become popular among investors. Reports show that last month, Southbound East Asia’s Samsung Electronics Daily Leverage (2x) attracted net purchases of $7.46 million from Korean investors, ranking among the most actively traded products on the Hong Kong Stock Exchange.

It is reported that the initial products will only target Samsung Electronics and SK Hynix. Korean regulators will consider expanding the scope of underlying stocks based on market performance.

Initial Focus on Chip Giants, Product Details Await Regulatory Rules

As core weight stocks in Korea’s stock market, Samsung Electronics and SK Hynix are the first individual stocks selected for leveraged ETFs, drawing widespread market attention.

Citing Korean financial regulators, local media reports that the choice of these two chip giants as pilot targets is mainly due to their market influence and liquidity advantages.

Public data shows that Samsung Electronics and SK Hynix together account for over 30% of Korea’s KOSPI index market capitalization. They are the two most traded stocks in Korea, with sufficient liquidity to support the creation, trading, and hedging of leveraged ETFs. Additionally, as global leaders in memory chip manufacturing, their stock performance is deeply linked to the global semiconductor cycle, making them key targets for investors.

A representative from Korea’s Financial Services Commission revealed that the leveraged ETFs based on individual stocks will be strictly limited to a 2x leverage, lower than the previously expected 3x, reflecting cautious risk management by regulators. The products will maintain leverage through daily rebalancing mechanisms to ensure daily returns are twice that of the underlying stocks.

Details of the product operations are still pending regulatory clarification. Reports indicate that the rules will focus on three areas: first, quantitative entry standards for underlying stocks, including market cap and average daily trading volume; second, operational standards for derivatives hedging, specifying conditions and ratios for using stock index futures and options; third, qualification requirements for issuing institutions, emphasizing asset management firms’ net assets and risk management capabilities.

Both major asset management firms, Samsung Asset Management and Korea Future Asset Global Investments, have completed initial preparations. Once regulations are announced, they plan to expedite product registration processes to aim for listing in May.

Domestic Demand Drives Reform, Korea’s ETF Market Size Expected to Continue Growing

Many industry insiders believe that Korea’s decision to break the ban on single-stock leveraged ETFs is driven by long-suppressed domestic investor demand for leveraged investments and the pressure of capital outflows to overseas markets.

Previously, Korea only allowed leveraged ETFs tracking broad market indices, leading high-risk appetite investors to seek opportunities in Hong Kong and other overseas markets.

For example, two 2x leveraged ETFs tracking Samsung Electronics and SK Hynix under Southbound East Asia saw their net asset values reach HKD 7.108 billion and HKD 19.014 billion respectively as of March 23, according to Wind data, representing increases of about HKD 6.7 billion and HKD 14 billion since the end of last year.

Reports also highlight that Korean investors constitute a significant portion of these inflows. Last month alone, Korean investors net bought $7.46 million worth of Southbound East Asia’s Samsung Electronics Daily Leverage (2x), reflecting strong local demand.

The Korea Financial Services Commission publicly stated in January that it would accelerate approval processes for single-stock leveraged ETFs and gradually relax restrictions to retain domestic capital and enhance Korea’s capital market competitiveness. The launch of the first products signals a shift from a “total ban” to a “regulated development” approach.

Going forward, regulators will evaluate the market performance of the initial products and consider expanding the scope of underlying stocks, potentially including other leading companies. There are also plans to restructure the KOSDAQ market next year, launching a “top-tier index” composed of leading companies and issuing related ETFs to diversify market offerings.

As of March 20, Korea’s domestic ETF net assets reached 381.3 trillion won (about $254.2 billion), nearly 30% higher than at the start of the year. Industry experts expect that the introduction of single-stock leveraged ETFs will enrich Korea’s ETF product lineup, attract domestic capital backflows, and draw overseas investments, further expanding the ETF market size.