Overview
South Korean retail investors have sharply reduced exposure to leveraged exchange‑traded funds (ETFs) that aim to deliver twice the daily returns of Samsung Electronics and SK Hynix after the Financial Services Commission introduced stricter rules.
Regulatory Changes
On 19 August, the regulator mandated a five‑day simulated‑trading course that can only be run on a Windows‑only program; participants must trade with virtual funds for at least one hour each day before they are permitted to invest in the leveraged ETFs. The same set of measures also raised the minimum deposit required to hold these products.
Market Impact
Trading value in the two leveraged chip ETFs collapsed to roughly 4 % of their June peak. Combined outflows in August amounted to about US $1 billion, pushing total assets under management from a late‑June high of US $11.4 billion to approximately US $5 billion as of 27 August. At their height, turnover in the ETFs and the underlying Samsung and SK Hynix shares accounted for more than 80 % of total market trading.
Broader Market Conditions
The KOSPI volatility index fell to a four‑month low near 50, down from 97 in late June, reflecting reduced market turbulence. The KOSPI benchmark index is up 61 % year‑to‑date but remains about 25 % below the record level reached two months earlier.
Outlook
Bloomberg Intelligence analyst Rebecca Sin noted that further outflows are possible in the near term as regulators continue to tighten restrictions on leveraged products.