Asset managers selling the products say they represent a lower-cost hedging tool aimed at professional traders and sophisticated investors, with many products blanketed in disclaimers that they are not suitable for buy-and-hold investors.
The expense of maintaining a leveraged position erodes returns over time, meaning they often diverge substantially from their target investments. Nevertheless, many retail investors have been happy to pile in to chase the gains.
In South Korea, everything is amplified by the sheer size of the ETF flows and of the stocks in question, with SK Hynix and Samsung each commanding trillion-dollar market caps and comprising more than half of the benchmark KOSPI index.
The combination is "creating an incredible feedback loop that's driving volatility in the semiconductor space," said Michael Green, chief strategist and portfolio manager for Simplify Asset Management.
"That's driving elevated levels of volatility on a single-stock level."
The Hong Kong-listed twice-leveraged ETF tracking SK Hynix offered by fund manager CSOP, which has grown into the biggest fund of its type globally, has plunged 83% during the past month since peaking in late June, but still holds HK$31.9 billion ($4 billion) in assets, according to HKEX data.
Its flows helped SK Hynix's stock price soar, but have lately accelerated selling and by late July the stock had halved from a peak in late June.
The stock, along with Samsung, accounts for more than 80% of the trading volume of the KOSPI on some days this year, according to calculations by Reuters.
The KOSPI’s volatility index .KSVKOSPI has spent the past six weeks above 80, with a record high of 97.99 on June 19, after decades spent comfortably perched below 30.
SK Hynix's Nasdaq debut in July injected another source of volatility, with a wave of new leveraged ETF listings in the United States
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