Opening
Eight South Korean asset managers — Samsung Asset Management, Mirae Asset, Korea Investment, KB, Shinhan, Hanwha, Kiwoom, and Hanwha — launched 16 leveraged and inverse exchange-traded funds (ETFs) tracking Samsung Electronics and SK Hynix on May 27, 2024. By the close of trading on May 28, the combined assets under management (AUM) of these products reached 5.02 trillion won (approximately $3.36 billion or 22.7 billion yuan), with total trading volume on May 28 alone hitting 9.62 trillion won. The launch followed two rounds of regulatory guidance issued by Korean financial authorities on May 15 and May 25, which emphasized the structural differences between leveraged ETFs and conventional funds, warning that single-stock daily price limits of 30 percent translate to theoretical maximum losses of 60 percent under 2x leverage. Goldman Sachs' sales and trading division issued a report highlighting that daily rebalancing mechanics inherent to these products force funds to "buy on rallies and sell on declines," a dynamic the bank characterized as an "accelerator" of market volatility.
Launch Day: Record Inflows and All-Time Highs
On May 27, 2024, the 16 products — comprising 2x leveraged and inverse ETFs — debuted on the Korean stock market. According to Bloomberg, Goldman Sachs reported that first-day AUM totaled 4.3 trillion won (approximately $2.876 billion or 19.493 billion yuan). The KOSPI index closed at 8,228.70 points, up 2.25 percent, marking an all-time high. Samsung Electronics rose 2.68 percent, while SK Hynix surged 9.31 percent, pushing its market capitalization above $1 trillion and making it the second South Korean company to join the "trillion-dollar club" after Samsung Electronics.
Second-Day Volatility and Retail Demand
On May 28, 2024, the KOSPI index fell as much as 4.7 percent intraday before closing down 0.53 percent. Samsung Electronics declined 2.44 percent, while SK Hynix gained 2.05 percent. Despite the divergent performance, retail investors continued to pour capital into leveraged products. Data from Yonhap News Agency showed that individual investors net purchased 367.7 billion won of the "KODEX SK Hynix Leveraged" ETF and 349.6 billion won of the "TIGER SK Hynix Leveraged" ETF, ranking third and fourth respectively across all securities traded that day — behind only Samsung Electronics and SK Hynix shares themselves. Even leveraged products tied to the declining Samsung Electronics recorded net inflows exceeding 100 billion won each.
Goldman Sachs Warns of Structural Risks
In a report issued by its sales and trading division, Goldman Sachs outlined the mechanical trading behavior embedded in leveraged ETFs. To maintain daily 2x or inverse 1x exposure, these funds must rebalance holdings at the end of each trading session. This process forces managers to increase positions after gains and reduce exposure after losses — a pattern Goldman Sachs explicitly labeled a market volatility "accelerator." The bank warned that when trends persist, rebalancing flows can amplify rallies, but when markets reverse, forced selling can sharply magnify declines. The report also noted that daily reset mechanisms introduce compounding losses in choppy markets, eroding principal over time.
Regulatory Guidance on Leverage Amplification
Korean financial regulators issued investment guidance on May 15 and May 25, 2024, stressing that leveraged ETFs differ fundamentally from standard funds. Under 2x leverage, the 30 percent daily price limit on individual stocks translates to a theoretical maximum single-day loss of 60 percent for holders of these products. Authorities highlighted that the amplification effect applies to both gains and losses, and that compounding effects over multiple sessions can result in returns diverging significantly from twice the underlying asset's performance.
Market Concentration and Systemic Concerns
Goldman Sachs' report underscored a broader structural risk: Samsung Electronics and SK Hynix now account for approximately 50 percent of the KOSPI index's total weight. The bank stated, "Any sector-specific shock to semiconductors will now be amplified twofold through the mechanical selling generated by these multi-billion-dollar funds, potentially triggering broader index-level instability." The concentration of capital in leveraged products tied to two stocks raises concerns about feedback loops during periods of sector stress.
Early Trading on May 29
On May 29, 2024, Korean markets opened higher. As of the time of publication, the KOSPI index was up more than 2 percent, Samsung Electronics had gained over 4 percent, and SK Hynix was up more than 1 percent.
