Unease over Korea leveraged ETFs grows as lawmakers demand fix
Concerns about such ETFs, which potentially amplify volatility, are rising among policymakers and investors
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[HONG KONG] South Korean lawmakers are increasingly sounding alarms over the risks of single‑stock leveraged exchange‑traded funds (ETFs), with an opposition party member now calling for such products to be delisted.
On Monday (Jul 6), Ahn Cheol-soo, a lawmaker from the conservative People Power Party (PPP) and former presidential candidate, called for strong corrective measures, including delisting, of Korean leveraged ETFs tracking Samsung Electronics and SK Hynix.
The Kospi index “has turned into a casino”, he wrote in a Facebook post. The products are a “complete policy failure. Every day, (they are) eating away at trillions of won in corporate value and public wealth”, he added.
His remarks add to a growing chorus of policymakers and investors concerned about the risks of such ETFs.
Designed to deliver twice the return of the underlying stock, the funds’ mechanical rebalancing process forces them to buy more when prices rise and sell more when prices fall – potentially amplifying volatility.
Last week, Lee Eonju, a lawmaker from the ruling Democratic Party, warned in a Facebook post that retail investors’ growing use of these instruments as long‑term holdings risks fuelling more speculative flows and ultimately harming both investors and the broader economy.
She questioned whether brokerages rushing to list these ETFs had “nurtured another speculative tool within the domestic market”.
In a written response submitted to another PPP lawmaker, the Bank of Korea (BOK) said expanding investment in single‑stock leveraged ETFs could further heighten the market concentration of Samsung and SK Hynix, according to a Jul 5 report by news agency Yonhap.
The BOK plans to strengthen monitoring of the ETFs, Yonhap reported.
Together, the two companies now account for more than half of Korea’s total market capitalisation.
In July, they topped the list of the ten most traded securities on the Korea Exchange, while four others were leveraged and had inverse products tied to their performance. BLOOMBERG
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