The Dream of 'Double Returns' Turns into 'Principal Loss'... The Betrayal of Single-Stock Leverage [Theme+]

[Financial News] As Samsung Electronics and SK hynix plunged, single-stock leveraged exchange-traded funds (ETFs) fell below their listing prices one after another. Just over a month after listing, most of the products were already trading below their issue price, and net assets have shrunk by nearly 3 trillion won from their peak.
According to the Korea Exchange on the 8th, after Samsung Electronics and SK hynix both tumbled the previous day, 13 of the 14 single-stock leveraged ETFs based on those shares fell below their 20,000 won listing price at the close. The only exception was the KODEX SK Hynix Single Stock Leverage ETF.
Samsung Electronics and SK hynix fell 6.92% and 6.06%, respectively, the previous day. Single-stock leveraged ETFs that track those moves at twice the rate dropped by around 12% to 13%. The Samsung Electronics Single-Stock Leveraged ETF fell 13.71%, while the TIGER Samsung Electronics Single-Stock Leveraged ETF declined 13.88%. The KODEX SK Hynix Single Stock Leverage ETF fell 12.56%, and the MiraeAsset TIGER SK Hynix Single Stock Leverage ETF dropped 12.44%.
During intraday trading, some products saw losses widen to around 20%, briefly approaching their lowest levels since listing. In contrast, inverse products that bet on declines posted strong gains. The SOL SK hynix Futures Single Stock Inverse 2X rose 11.84%, while the PLUS Samsung Electronics Futures Single-Stock Inverse 2X ETF closed up 12.68%.
Trading activity among investors was even more intense. The trading value of 16 single-stock leveraged and inverse products totaled 13.0113 trillion won. That accounted for more than one-third of total ETF trading value, which stood at 36.0481 trillion won.
As the sharp declines in Samsung Electronics and SK hynix were compounded by trading in single-stock leveraged products, volatility in the stock market reached extreme levels. In the KOSPI Composite Index market, a sidecar was triggered in the morning, followed by a first-stage circuit breaker mechanism in the afternoon.
Investor losses are also mounting rapidly. Because leveraged products are structured to track twice the movement of the underlying asset, the 'negative compounding' effect can quickly erode principal in sideways or highly volatile markets.
As of the 6th, the total net assets of the 16 single-stock leveraged products stood at 14.9126 trillion won. That was down about 15.3% from 17.5994 trillion won recorded on the 25th of last month. In roughly 10 days, net assets fell by about 3 trillion won.
Meanwhile, Koo Yun-cheol, Deputy Prime Minister and Minister of Economy and Finance, said at a plenary session of the National Assembly's Finance, Economy and Planning Committee on the day, "We are well aware of concerns that leveraged ETFs are increasing market volatility," and added, "We are discussing supplementary measures with relevant agencies to minimize volatility."
dschoi@fnnews.com Choi Du-seon Reporter