South Korean investors suffer US$1.7 billion losses from leveraged ETFs

[SEOUL] Retail investors have suffered an estimated 2.3 trillion won (US$1.7 billion) in cumulative losses from leveraged single-stock exchange-traded products tracking South Korea’s major chipmakers, according to data from the Financial Supervisory Service released by opposition lawmaker Choi Eun-seok.

Clients across 10 major South Korean brokerages – including Mirae Asset Securities, Kiwoom Securities, Samsung Securities and NH Investment & Securities – incurred the losses from single-stock ETFs and exchange-traded notes tied to Samsung Electronics and SK Hynix between May 27 and Aug 14.

Since their introduction in May, single-stock leveraged products have intensified volatility in South Korea’s artificial intelligence-centric equity market.

While leveraged bets initially helped propel local indices into top global performers, sharp reversals in the semiconductor sector rapidly amplified downside losses for mom-and-pop investors.

In response to the severe drawdowns and speculative fervor, financial authorities implemented cooling measures starting in July.

Regulators imposed a temporary moratorium on new listings of single-stock leveraged products, raised minimum cash deposit requirements, and mandated specialised training for prospective retail investors.

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The regulatory intervention marked a sharp pivot from May, when authorities first approved single-stock leveraged instruments to prevent domestic retail capital from fleeing to similar high-risk products listed on foreign exchanges.

The steep losses highlight the outsized risks of applying financial leverage to companies deeply exposed to cyclical swings in the global artificial intelligence supply chain, where Samsung Electronics and SK Hynix serve as critical memory-chip suppliers. BLOOMBERG