"Just Eight Stocks: Samsung and SK Hynix Leverage Is Shaking Global Semiconductor Shares," Japanese Media Says

[Financial News] Japanese media have raised the possibility that a single-stock leveraged exchange-traded fund (leveraged ETF) launched in South Korea is behind the sharp swings in global memory semiconductor shares. The structure of leveraged ETFs, which buy more when stock prices rise and sell more when they fall, is said to be amplifying volatility in memory semiconductor stocks such as SK hynix and Samsung Electronics.
On the 10th, The Korea Economic Daily reported, citing Nikkei, Inc., that Japan's Nikkei had pointed to South Korea's single-stock leveraged ETF market as a factor behind the recent extreme price swings in memory semiconductor shares.
The Nikkei said Samsung Electronics and SK hynix, which lead the global memory semiconductor market, have posted steep gains this year, supported by rising demand for high-bandwidth memory (HBM) for AI servers.
The newspaper identified single-stock leveraged ETFs as one of the causes of the increased volatility.
Leveraged ETFs repeatedly rebalance to maintain their target multiple of returns, buying more of the underlying asset when prices rise and selling again when they fall. The paper explained that, because trading tends to concentrate just before the market close, the structure can intensify buying in rising markets and selling in falling markets, thereby magnifying price swings.
The Nikkei in particular singled out SK hynix as the stock at the center of the controversy. It said SK hynix is scheduled to list American Depositary Receipts (ADR) on Nasdaq in the United States on the 10th local time, and noted that although the stock has corrected about 25% from its peak, it is still more than three times higher than at the end of last year.
It also added that SK hynix's annualized volatility over the past 20 trading days has exceeded 110%, far above the roughly 15% level of the U.S. S&P 500 Index.
The report also cited analysis from France's Societe Generale (SG). According to SG, on trading days with especially high volatility, as much as 25% of SK hynix's spot trading value came from ETF rebalancing transactions.
South Korea allowed single-stock leveraged ETFs in April this year, and eight asset management companies are now running products based on SK hynix and Samsung Electronics.
The Nikkei said concerns are also being voiced by South Korea's financial regulators. It reported that the head of the financial supervisory authority recently said he regretted not having stopped the introduction of single-stock leveraged ETFs, even if only by force.
Still, the Nikkei said that while the leveraged ETF market is growing rapidly, it is unlikely to pose a systemic risk serious enough to threaten the broader market.
[email protected] Seo Yoon-kyung Reporter