Leverage on Korean chip stocks has spiraled out of control. The total assets of SK Hynix's single-stock leveraged ETF are approximately $19 billion, more than four times its average daily trading volume. Samsung-related leveraged ETF assets stand at about $12.4 billion, also 176% higher than its average daily turnover.

In comparison, the leveraged ETF asset sizes for Micron, Tesla, and Nvidia are all far below their average daily trading volumes. The concentration of leverage in the Korean market is in a league of its own among major global stocks.

What does this mean? When SK Hynix's stock price fluctuates, forced liquidations or margin calls on leveraged ETFs can amplify selling pressure, creating a stampede. The 2x long SK Hynix ETF listed in Hong Kong has assets of about $13 billion, twice SK Hynix's average daily trading volume—once the trend reverses, these leveraged products could become an accelerator for declines.

The high leverage in Korean chip stocks is not unrelated to the crypto market. Some Korean retail investors are active in both the crypto and stock markets, and the chain reaction of leverage could transmit between the two. SK Hynix's upcoming listing in the U.S. next week, with a valuation of $29 billion, may attract more capital inflow, but the fragility under a high-leverage environment cannot be ignored.

Market sentiment is neutral to slightly bearish. Funding rates indicate that bearish sentiment has weakened but has not yet formed a bullish consensus. The leverage structure risk of Korean chip stocks may be the most underestimated tail event at present.

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