Recent discussions have emerged as financial authorities have identified single-stock leveraged exchange-traded funds (ETFs) as a factor contributing to market volatility. However, asset management professionals and market experts argue that the recent fluctuations in stocks like Samsung Electronics and SK Hynix cannot be solely attributed to these ETFs. They point out that changes in the global semiconductor market and volatility in overseas markets preceded these movements, and the actual size of ETF rebalancing is not significant compared to individual stock trading volumes.
According to industry sources, there are three main issues surrounding single-stock leverage. The first is the claim that recent volatility in semiconductor stocks is due to single-stock leveraged ETFs. The Korea Capital Market Institute reported that from May 25 to June 19, the annualized volatility of SK Hynix increased from 90% to 101%. However, during the same period, the Philadelphia Semiconductor Index rose from 46% to 75%, and Micron's volatility surged from 85% to 126%, indicating that U.S. semiconductor stocks experienced even greater volatility.
This suggests that as global semiconductor sector volatility increased, the KOSPI's volatility, which is heavily weighted by Samsung Electronics and SK Hynix, also naturally rose. On July 1, major semiconductor stocks like Micron (-10.57%) and SanDisk (-10.62%) plummeted on the New York Stock Exchange, with the Philadelphia Semiconductor Index dropping by 6.27%. This shock carried over to Asian markets the following day, with the KOSPI and KOSDAQ falling by 7.89%, and Samsung Electronics and SK Hynix dropping by 9.06% and 14.57%, respectively. On the same day, Japan's Kioxia Holdings also fell by 13.47%.
An industry insider stated, "As concerns about a peak-out in the global semiconductor market and changes in investor sentiment emerged, major semiconductor companies' stock prices moved significantly at the same time. If single-stock leverage were the cause, it would be difficult to explain the sharp decline of Kioxia Holdings, which does not have leveraged products."
The second issue is the actual market impact of single-stock leveraged ETFs. To assess their influence, it is essential to look at the proportion of ETF rebalancing demand relative to total trading volume, rather than just trading volume or net asset value. According to Korea Investment & Securities, from May 27 to the end of June, the rebalancing demand for leveraged and inverse ETFs tracking Samsung Electronics and SK Hynix was estimated at 300 billion won and 2.1 trillion won, respectively. When compared to the average daily trading volume of individual stocks during the same period, this represents about 4%.
Market analysts believe that this level of rebalancing demand is insufficient to explain the recent sharp fluctuations in stock prices. Notably, Samsung Electronics and SK Hynix are representative stocks that are influenced by both domestic and international factors, including foreign investment flows and the global semiconductor market, making it difficult to attribute volatility solely to ETF supply and demand.
The third issue concerns the high turnover rates of single-stock leveraged ETFs. The Financial Supervisory Service expressed concern over excessive short-term trading, noting that some products have turnover rates exceeding 1000%. However, data shows that as of July 10, only three products had turnover rates above 100%: SOL SK Hynix Futures Single-Stock Inverse 2X (1183.55%), PLUS Samsung Electronics Futures Single-Stock Inverse 2X (412.41%), and KODEX SK Hynix Single-Stock Leverage (102.35%). The average turnover rate for the 16 single-stock leveraged and inverse ETFs was 145.03%.
Industry experts argue that such turnover rates are natural given the characteristics of these products. They are designed to track the daily returns of specific stocks at double the rate, which inherently assumes short-term trading. One asset management insider explained, "If the turnover rate is 30%, it means the average holding period is about three days. Given that leveraged ETFs are structured in a way that increases the risk of capital loss the longer they are held in volatile markets, interpreting high turnover rates as a warning sign is not appropriate."
* This article has been translated by AI.
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