High risk, high reward S Korea to debut AI-boom linked ETFs

Linked to chipmakers Samsung Electronics and SK Hynix, the products will seek to deliver twice the daily moves of the two stocks, both central to the global artificial intelligence trade.

Analysts expect the ETFs to draw strong demand from the nation’s more than 14 million retail investors. Such enthusiasm, however, risks exacerbating volatility at a time when 5% intraday swings in the Kospi have become increasingly common.

“The ETFs will intensify the existing problem – the concentration risk,” said Jung In Yun, CEO at Fibonacci Asset Management Global in Singapore. “This poses a structural problem for longer-term investors as the volatility of the index will remain elevated, making it difficult to navigate the Korean market.”

Leveraged exchange-traded products offer investors a chance to make outsized gains on indexes, stocks, bonds or commodities by using derivatives and swap contracts to bet on the underlying assets. They can also exacerbate swings in heavily traded names, as issuers often need to rapidly buy or sell assets to keep the funds aligned with their promised leverage ratios.

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Korean investors have shown a voracious appetite for such products in recent years, seeking to capitalize on the global AI boom that also propelled the Kospi. The benchmark has more than tripled since the end of 2024, fueled by a surge in chipmakers and the nation’s push to improve shareholder returns.
Leveraged ETFs tied to the Kospi, as well as Hong Kong-listed ETFs linked to Korean chipmakers, have already proven wildly popular among Korean day traders. They have also poured money into US-listed leveraged semiconductor funds. That, in fact, is a key driver behind the launch of single-stock leveraged ETFs in the nation. Regulators, who had hitherto barred such products over concerns about their high-risk nature, are now seeking to lure back retail flows.At about $1.3 billion, year-to-date inflows into a Hong Kong-listed two-times leveraged product tied to Samsung’s shares have exceeded those for similar products tracking US tech heavyweights such as Tesla and Microsoft.