BlockBeats News, August 7, South Korean retail investors' high-leverage trading around Samsung Electronics and SK Hynix is transitioning from an asset management growth story to a market stability issue in the eyes of regulators.

Since its listing on May 27, South Korea's first batch of single-stock leverage products has quickly become one of the most crowded trades in this round of the Korean semiconductor market. The 16 single-stock ETFs and 2 ETNs designed around Samsung Electronics and SK Hynix allow investors to make approximately 2x directional bets on a single stock. The initial launch of these products coincided with the AI storage cycle heating up, attracting a flood of South Korean retail funds, and the total assets of the South Korean ETF market were once pushed to a historical high.

The winners on the fee side quickly emerged. Based on net asset size and fee rates, these single-stock leverage ETFs generated nearly 3.7 billion Korean won in management fees after operating for about two months. Samsung Asset Management, leveraging the scale advantage and higher fees of the KODEX products, took the lion's share, while the forthcoming assets exchanged lower fees for shares. Early South Korean media data has shown that Samsung and the forthcoming assets together accounted for over 90% of the net assets of this type of product, further concentrating liquidity towards the top products.

However, this fee feast also came with significant side effects. In mid-July, the South Korean Financial Services Commission stated that after the listing of single-stock leverage products, market capitalization and trading volume surged rapidly, and the weights of Samsung Electronics and SK Hynix on the KOSPI once rose to 52%. The regulator also pointed out that the significant increase in global storage stock volatility, combined with high volatility in individual stocks like SK Hynix and Samsung Electronics and rebalancing trades in the products, could amplify market shocks.

The South Korean authorities subsequently accelerated rule tightening. Starting from July 31, the basic margin threshold for individual investors investing in these products was raised from 10 million Korean won to 30 million Korean won, and cash was required to fulfill the margin, no longer accepting alternative securities; regulators also suspended the listing of relevant new products, restricted advertising, and strengthened spread management and investor education.

There are signs of cooling trading heat. Data from the South Korean exchange shows that after the introduction of new regulations, the daily trading volume of the 16 related single-stock leverage/inverse ETFs has dropped from around 10-12 trillion won (peaking at 15-20 trillion won) to about 1 trillion won (August 3-4), and further down to 919.8 billion won on August 5 (first time below 1 trillion). Slightly rebounding recently, the trading volume of the 16 ETFs on July 27 was about 745 billion won.