Behind the Huge Shock in the Korean Stock Market - Retail Investors Leveraging Bets on Samsung and SK Hynix

The South Korean stock market has recently experienced record-breaking declines and strong rebounds, while two leveraged ETFs linked to Samsung Electronics and SK Hynix are increasingly seen by market participants as structural factors amplifying volatility. After the outbreak of the Iran war, the South Korean stock market, with a market capitalization of nearly $4 trillion, suffered a severe shock, first recording the largest single-day decline in history, followed by the largest single-day increase since 2008. The CSOP SK Hynix Daily 2x Leveraged Product and CSOP Samsung Electronics Daily 2x Leveraged Product, listed in Hong Kong with a combined management scale of $3.3 billion, continuously amplify price fluctuations during key trading periods through a daily rebalancing mechanism. South Korean financial regulators have convened industry meetings regarding the risks of leveraged investments, with warnings from external sources that as Seoul plans to allow such high-risk products to be listed and traded domestically, future market volatility under pressure scenarios may become even more severe. Two Chip Stocks Affect the Overall Market Samsung Electronics and SK Hynix together account for nearly 40% of the weight of the Korea Composite Stock Price Index (Kospi) and half of the weight of the MSCI Korea Index, making their price movements decisive for the overall market. This highly concentrated structure has long been viewed as a risk by the industry, but few considered it an urgent threat before the Iran war triggered a market shock. Due to Seoul's ban on single-stock leveraged ETFs from being listed domestically, South Korean investors have flocked to alternative products listed in Hong Kong. The two leveraged ETFs issued by the Chinese asset management company CSOP have become among the largest funds under the company. Jung In Yun, CEO of Fibonacci Asset Management Global, stated: "The rapid expansion of leveraged ETFs related to Samsung Electronics and SK Hynix is beginning to add a layer of structural volatility to the South Korean market. Given the significant weight of Samsung and SK Hynix in the Kospi, this will create a feedback loop, amplifying index volatility and raising concerns about more severe fluctuations during future periods of stress." Daily Rebalancing as a Volatility Amplifier Leveraged products must rebalance daily to maintain target exposure. When the market declines, long leveraged funds typically reduce their positions by selling futures or underlying stocks, and the resulting mechanical selling pressure often exacerbates the decline. According to a UBS trading desk memo obtained by Bloomberg, on March 3, when SK Hynix's stock price plummeted by 16%, the funds flowing from rebalancing accounted for as much as 60% of the trading volume in the hour before the stock's close; on other recent trading days, such flows also accounted for about 30% of total trading volume. Leveraged ETFs tracking the South Korean market had previously received little attention until the end of last year when the Kospi recorded leading gains globally, at which point related products began to see a rapid influx of funds. According to Bloomberg, as of March 5, 2026, the net inflow into global leveraged ETFs tracking Korea has reached $4.4 billion this year, expected to set a historical record for a single quarter Although this scale is less than 20% of the total inflow of Korean ETFs, market participants point out that the daily rebalancing mechanism makes its impact on volatility far exceed what its asset size suggests. Even amid market turmoil triggered by the Iran war and soaring energy prices, investor buying enthusiasm remains unabated. Data compiled by Bloomberg shows that in the past week, CSOP's SK Hynix and Samsung leveraged products ranked second and fourth in net inflows among leveraged ETFs tracking the Korean market globally. Retail Leverage and Foreign Capital Profit-Taking Overlap Leveraged ETFs are not the only driving force behind this round of volatility. As the Kospi accumulated nearly a 140% increase over the year ending February 27, foreign investors began to take profits after the outbreak of the Iran war. Meanwhile, a large number of retail investors who entered the market with borrowed funds were forced to liquidate positions due to a sharp drop in stock prices triggering margin calls. "This is a market driven by retail leverage," said Rob Li, managing partner at Amont Partners in New York, when discussing the Korean market. "When a large amount of leverage is piled on, geopolitical shocks will inevitably trigger much higher volatility." However, Chan H. Lee, managing partner at Seoul-based hedge fund Petra Capital Management, believes that behind this round of severe volatility, professional global macro and multi-strategy institutions should not be overlooked. "These ETFs are likely being used by so-called multi-strategy 'pod shops'," Lee stated, "Their leveraged strategies, combined with global macro quantitative methods, result in price movements that are far more significant than simple retail trading." Risk Warning and Disclaimer The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at one's own risk