South Korea is trying to contain volatility in leveraged investment products bought by retail investors seeking amplified returns from the shares of Samsung Electronics and SK Hynix, the country’s two dominant memory-chip manufacturers.
Samsung Electronics is South Korea’s largest company and the world’s biggest memory-chip producer. SK Hynix is the country’s second-largest memory-chip maker and a leading supplier of high-bandwidth memory used in artificial-intelligence data centers. Together, the two companies occupy an unusually large place in South Korea’s stock market, making sharp moves in their shares capable of affecting the broader market.
That influence has become more difficult to manage as leveraged products tied to the companies have grown. The products are designed to multiply the daily movements of the underlying shares, offering larger gains when Samsung Electronics or SK Hynix rises but also magnifying losses when the stocks fall.
Recent volatility in the two companies’ shares has intensified concerns that the products could worsen market swings. Leveraged funds must frequently rebalance their holdings to maintain their targeted daily returns. During sharp declines, that process can force additional selling. During rallies, it can require further buying. In a market already concentrated around two major semiconductor companies, those transactions can add pressure in the same direction as the original move.
South Korean officials have nevertheless concluded that removing the products could create an even larger disruption.
Kim Yong-beom, chief of policy at South Korea’s presidential office, said investors have already placed more than 10 trillion won into the leveraged products. Delisting them could force holders to unwind their positions and generate a wave of selling in shares connected to two of the country’s most heavily traded companies.
Kim said the products should remain listed while regulators work to reduce their side effects. South Korea’s Financial Services Commission, the country’s top financial regulator, has announced measures intended to address pricing distortions and other structural problems associated with leveraged exchange-traded products.
Officials are also considering changes that could reduce the market impact of mandatory portfolio rebalancing. The aim is to limit the additional buying and selling generated by the products without forcing investors out of positions that have already grown too large to close without consequences.
The issue matters beyond South Korea because leveraged products tied to individual technology and semiconductor companies have also become more common in the U.S. market. They give retail investors a way to make concentrated short-term bets on a single stock without borrowing directly, but their structure can produce losses that are far larger than many investors expect when markets move sharply or remain volatile over several trading sessions.
South Korea’s difficulty is more pronounced because Samsung Electronics and SK Hynix are not ordinary components of its stock market. They are central to the country’s exports, industrial earnings and benchmark indexes. A disorderly exit from leveraged products linked to their shares could therefore spread beyond the investors who chose to take the risk.
The government is now trying to prevent those products from amplifying volatility while avoiding a forced liquidation that could deepen it. The danger is no longer limited to investors making leveraged bets on Samsung Electronics and SK Hynix. The products have grown large enough that regulating them has itself become a market risk.
