Important change! South Korea's first individual stock leverage ETF, with the initial targets including Samsung and SK Hynix.

Every reporter: Li Lei Every editor: Xiao Ruidong

The reporter from “Daily Economic News” learned that a new leveraged exchange-traded fund (ETF) tracking individual stocks of Samsung Electronics and SK Hynix is expected to debut as early as May in South Korea, offering investors double the daily returns of these two chip giants.

According to local media reports, South Korea’s financial regulatory authorities and industry insiders recently revealed that an individual stock leveraged ETF based on Samsung Electronics and SK Hynix is about to be launched. This new product will target daily positive and negative returns of twice the underlying stocks, highly correlating with individual stock volatility, and marks the market’s expansion from traditional leveraged ETFs tracking broad indices to more focused investment tools.

Market news also indicates that specific implementation details are expected to be announced within this month, clarifying market capitalization thresholds, trading volume requirements, and derivative hedging conditions. Asset management giants Samsung Asset Management and Korea’s Mirae Asset Global Investments are already preparing related products.

The reporter from “Daily Economic News” learned that previously, South Korea prohibited single-stock leveraged ETFs, prompting investors to turn to similar products listed overseas. The SK Hynix Daily Leveraged (2x) and Samsung Electronics Daily Leveraged (2x) products under Southern Asset Management have become targets for many investors. Reports show that Southern Asset Management’s Samsung Electronics Daily Leveraged (2x) saw a net purchase of $7.46 million from Korean investors last month, making it one of the most actively traded products on the Hong Kong Stock Exchange.

It is reported that the first batch of listed products will be limited to the underlying stocks of Samsung Electronics and SK Hynix, and South Korean regulators will consider the possibility of expanding the range of underlying stocks based on market performance.

First batch of targets locked on chip giants, product details await regulatory guidelines

As core weighted stocks in the South Korean stock market, Samsung Electronics and SK Hynix have become the first individual stock leveraged ETF targets in South Korea, attracting widespread market attention.

According to local media citing information from South Korea’s financial regulatory authorities, the choice of these two chip giants as pilot cases is primarily based on their market influence and liquidity advantages.

Public data shows that the combined market capitalization of Samsung Electronics and SK Hynix accounts for over 30% of the total market capitalization of the Korean KOSPI index, making them the two most traded individual stocks in the South Korean stock market. Ample liquidity provides a foundation for the establishment, trading, and hedging of leveraged ETFs. Additionally, as leaders in the global memory chip industry, their stock price performance is deeply tied to the global semiconductor cycle, making them core targets of investor interest.

A relevant person from the South Korean Financial Services Commission revealed that the newly launched individual stock leveraged ETF will strictly limit the leverage multiple to 2x, lower than the previously expected 3x, highlighting the regulators’ cautious attitude towards risk control. The product will maintain the leverage ratio through a daily rebalancing mechanism, ensuring that daily returns are doubled in relation to the underlying stock.

Currently, the specific operational details of the related products are still awaiting clarification from regulatory guidelines. According to reports, the guidelines will focus on clarifying three aspects: first, the quantitative admission standards for the underlying stocks, including market capitalization and average daily trading volume; second, the operational norms for derivative hedging, specifying the conditions and ratios under which ETF managers can use index futures and options; third, the qualification requirements for issuing institutions, focusing on assessing the net asset size and risk management capabilities of asset management firms.

It is reported that the two major asset management giants, Samsung Asset Management and Korea’s Mirae Asset Global Investments, have completed initial preparatory work. Following the announcement of the regulatory guidelines, they will quickly advance the product application process, aiming for the first batch to be listed in May.

Domestic demand drives reform, South Korea’s ETF market size expected to continue expanding

Many industry insiders believe that South Korea’s breakthrough of the single-stock leveraged ETF ban is primarily driven by the long-suppressed leveraged investment demand from domestic investors and the pressure of capital diversion to overseas markets.

Previously, South Korea only allowed the issuance of leveraged ETFs tracking broad indices, leading many risk-tolerant investors to seek investment opportunities in overseas markets like Hong Kong.

Taking the two 2x leveraged ETFs tracking Samsung Electronics and SK Hynix under Southern Asset Management as an example, according to Wind data, as of March 23, the net asset values of the two products reached HK$7.108 billion and HK$19.014 billion, respectively, surging approximately HK$6.7 billion and HK$14.026 billion compared to the end of last year.

Relevant reports also pointed out that Korean investors account for a significant share of this. Just last month, Korean investors net purchased $7.46 million of Southern Asset Management’s Samsung Electronics Daily Leveraged (2x) product, reflecting the urgent demand from domestic investors for related products.

In January this year, the South Korean Financial Services Commission publicly stated that it would accelerate the approval process for single-stock leveraged ETFs and gradually relax related restrictions to retain domestic capital and enhance the competitiveness of the South Korean capital market. The launch of the first batch of products is an important signal of the regulatory shift from “complete prohibition” to “regulated development.”

In the future, relevant departments will also evaluate the possibility of expanding the range of underlying stocks based on the market performance of the first batch of products, potentially including other leading companies in the target pool. There are also reports that South Korean regulators plan to restructure the KOSDAQ market next year, launching a “top sector” index composed of leading companies and issuing related ETF products to further enrich the capital market product supply.

According to statistics from South Korean financial regulators, as of March 20, the net asset size of domestic ETFs reached 381.3 trillion won (approximately $254.2 billion), an increase of nearly 30% compared to the beginning of the year. Market participants expect that the launch of individual stock leveraged ETFs is likely to enrich the product spectrum of South Korea’s ETF market, attracting domestic capital inflow and overseas capital influx, promoting the continuous expansion of the ETF market size.

Daily Economic News