Korean Leveraged Chip ETF Halved: Leverage Backlash After the AI Feast

A single-stock leveraged ETF that debuted in South Korea only at the end of May has already taught retail investors a lesson just over a month later. The largest single-stock leveraged ETF—SAMSUNG KODEX SK Hynix (tracking 000660.KS)—has fallen about 45% since its listing, with a pullback of more than 60% from the June peak. With assets under management still at $3.4 billion, it means the “chip leverage dream” of many Korean retail investors has been cut in half.

The trigger was that the rally in AI chips was considered “too much”—on Monday, SK Hynix plunged 15% in a single day in Seoul, dragging the KOSPI, which on Tuesday briefly dropped 5% and broke below 6500. Goldman Sachs pointed out that the star of this stampede was the Gamma rebalancing of leveraged ETFs: when prices fall, they must passively sell—selling more pushes prices further down. Of the 62% of net selling by local institutions, most came from this segment.

Interestingly, the chip fundamentals aren’t bad: SK Hynix’s operating profit in the first quarter surged 398% year over year. But when leveraged ETFs are held by retail investors as long-term positions, the double-edged sword hurts when it’s chopped downward. In the adjacent US market, NVDA is still grinding near highs, and here in crypto ETH is also swaying with the tech sentiment—this leverage deleveraging in Korea probably isn’t over yet.