South Korea’s approval last month of a group of single-stock leveraged exchange-traded funds has precipitated a dramatic drop in memory chip equities across multiple markets, with the shockwave evident from Seoul and Hong Kong to US pre-market trading ahead of the NYSE open.
In Seoul, Samsung Electronics (005930) posted a 12.31% decline, closing at 310,000 KRW, while SK Hynix (000660) fell 12.47% to 2,555,000 KRW. Both names initially opened higher during the session before turning sharply lower and collapsing through the trading day. The size of these moves contributed to the KOSPI retreating roughly 9-10% from recent record highs and prompted a market-wide circuit-breaker halt.
Nasdaq 100 futures were trading more than 2% lower before the US open, placing the index on track to erase in excess of $1 trillion in market capitalization in an early show of how the Asian selloff could transmit to global technology benchmarks.
The immediate catalyst for the market turmoil was an unusually candid briefing by the head of South Korea’s Financial Supervisory Service, Governor Lee Chan-jin. In that address, Lee said he regretted not taking stronger action to block the late-May launch of 16 single-stock leveraged ETFs that track Samsung Electronics and SK Hynix.
At their debut these leveraged funds held combined assets of about $3 billion, but holdings have since ballooned to roughly 14 trillion won, equivalent to approximately $9.1 billion. According to the figures presented by the regulator, roughly 92% of the holders of those ETFs are retail investors. "These are high-risk products," Lee said, adding that trading activity had not cooled despite warnings to consumers.
In language uncommon for a sitting financial regulator, Lee characterized his failure to block the launches as a personal shortcoming. "Half-joking, but I should have just stayed put then, and I have a lot of regrets," he said. "Reflecting on the situation, wondering if I should have laid down to protest the launch by any means necessary to block it then."
The Financial Supervisory Service said it is coordinating with the Financial Services Commission and the Korea Exchange on possible stabilization steps. No specific remedies have been announced publicly.
Parallel declines were seen in Hong Kong, where leveraged Hong Kong-listed products tied to the same names plunged. The CSOP SK Hynix Daily 2x Leveraged Product (7709.HK) fell 23.37% to 143.80 HKD, while the CSOP Samsung Electronics Daily 2x Leveraged Product (9747.HK) lost 23.68%.
Korean single-stock leveraged ETFs were similarly hit hard. KB RISE SK Hynix Single Stock Leverage (0192L0) dropped 25.18%, and Samsung KODEX SK Hynix Single Stock Leverage (0193T0) slid 25.48%.
The episode underlines how leveraged exchange-traded products can amplify price moves rather than simply replicate underlying equity performance. Market participants referenced estimates that illustrate the scale of secondary selling dynamics. A large daily swing in the Korean equity market is capable of triggering substantial rebalancing flows as options dealers and other market makers adjust hedges tied to leveraged instruments.
One analysis presented to reporters suggested a 5% move in the Korean market could force about $4.7 billion of rebalancing flow from options dealers adjusting hedges - an amount equivalent to nearly one-eighth of the shares typically traded on a normal day. That dynamic makes the behavior of leveraged ETFs "more important than ever in the market," according to observers who were cited during the session.
Market commentators had flagged elevated volatility risk in the days leading up to the rout. A senior technology equity analyst at Lynx Equity Strategies cautioned the week before that higher daily volatility associated with leveraged memory ETFs posed a material risk. The analyst noted that Micron Technology (MU) experienced a spike in daily return volatility to about 7% over a 35-day May-June window, up from roughly 4+% in comparable prior stretches, and that MU returned 125% in May-June versus 25% in March-April.
The analyst warned that "higher daily volatility is a double-edged sword," and observed that while fundamentals in flash and storage firms may remain benign, exaggerated daily swings could cause stocks to surrender above-normal monthly gains and mean revert to more sustainable levels. The analyst specifically noted that a 125% return in two months may not be sustainable.
With US markets not yet open at the time of the briefing, the full scope of the selloff's impact on US-listed memory and broader semiconductor names remained uncertain. Market watchers were focused on whether the Asian declines would bite into US-listed names including Micron (MU), SanDisk (SNDK), Western Digital (WDC), and Seagate Technology (STX), as well as beholden leveraged products and funds focused on memory, such as the leveraged memory ETF DRAM and the broad semiconductor fund SOXL. Pre-market futures signalled a sharp selloff in the tech sector, indicating heightened risk of further pressure at the US open.
Looking ahead, the near-term market question centers on whether South Korean authorities will implement concrete steps to rein in leverage or otherwise stabilize the affected ETFs. Potential measures under consideration could include limits on leverage, temporary trading suspensions, or other interventions, though no official policy steps have been disclosed. Any action by the Financial Supervisory Service, Financial Services Commission, or Korea Exchange could either help arrest the negative feedback loop or, if judged insufficient by market participants, intensify it.
For international investors, the episode presents a test case of how structural issues in domestically listed leveraged products can ripple through global equity markets that are tightly interconnected by investor flows and derivative hedging practices. The coming US session will therefore be closely watched as an indicator of how thoroughly the Asian levered-product disruption transmits into broader global memory and semiconductor equities.
Disclosure: The article presents reported market data and regulator comments. No further disclosure provided.