Korean Retail Investors Lose Approximately $1.7 Billion on Chip Leveraged Products
Korean lawmakers' offices, citing data from the Financial Supervisory Service, reported that retail investors are expected to incur losses of about 2.3 trillion won, approximately $1.7 billion, from leveraged exchange-traded funds and notes tracking Samsung Electronics and SK Hynix from May 27 to August 14.
The data comes from 10 Korean brokerage clients, including Mirae Asset, Kiwoom, Samsung Securities, and NH Investment & Securities, as disclosed by the office of People Power Party lawmaker Choi Eun-seok. This is the first time a specific scale of such losses has been reported. Another report submitted to the National Assembly indicated realized trading losses of 2.32 trillion won, excluding unrealized losses and small brokerages.
The product was launched in May, targeting a twofold daily increase or decrease, aimed at bringing retail investors back from similar overseas products. When the underlying stocks experienced single-digit declines, the twofold products could incur losses of 30% to 50%. The SK Hynix single-stock leveraged product peaked at 44,385 won on June 23, dropped to a low of 6,000 won on July 29, and closed at 10,700 won on October 6, a decline of about 76% from its peak.
Since July, regulatory measures have shifted. Authorities temporarily banned the listing of new leveraged single-stock products, raised the minimum cash margin, and strengthened investor training. The entry threshold significantly increased starting July 31. In June, the Financial Supervisory Service had already issued a consumer warning: if the underlying stock rises by 30% and then falls by 30%, a onefold product would lose 9%, while a twofold product would lose 36%.
Citi has estimated even higher cumulative losses for retail investors in the Korean leveraged ETF market, with an upper limit of 56 trillion won, exceeding the losses disclosed for these two chip products. On October 6, the National Assembly's oversight included the responsibility for product release as a key inquiry point. Following the implementation of these measures, related trading volumes decreased.
The buyers are local retail investors chasing the AI chip market, while the sellers are brokerages and asset management firms issuing twofold daily return products. The event was driven by volatility losses following the release in May, with funds shifting from the underlying stocks and overseas leveraged products to domestic twofold notes. Benefiting are brokerages that collect trading and redemption fees, while those under pressure are investors holding twofold products at high points and new retail investors blocked by margin requirements and training.
Source: Public Information
ABAB AI Insight
Korea released single-stock leveraged products in May, publicly stating the reason was to bring retail investors back from similar overseas funds. The Financial Supervisory Service had warned in June about daily twofold compounding losses, and only on July 31 did they raise cash margins and suspend new listings. The sequence of launching products first, issuing warnings later, and then implementing bans is similar to the tightening that followed the surge of domestic leveraged ETFs in 2020.
The loss path is in daily return resets, not in the fundamentals of the chips. Samsung and SK Hynix's underlying stocks only fell by single digits during the same period, yet SK Hynix's twofold product dropped from 44,385 won to an intraday low of 6,000 won. Among the 10 brokerages, Mirae Asset, Kiwoom, Samsung Securities, and NH Investment & Securities contributed to the statistically measurable client losses. Brokerages profit from trading and redemption fees, while retail investors bear the net value erosion after back-and-forth volatility.
A comparison can be made to the daily reset losses of U.S. single-stock twofold funds on Tesla and Nvidia, as well as the concentrated losses of Korean retail investors in overseas leveraged funds in 2022. The difference this time is that regulation kept transactions within the country through local listings, and then cut off incremental growth with bans on new listings and training two and a half months later. The position is at the first pullback after the release, not a product delisting.
This represents a transfer of pricing power. The price of the underlying stock is still determined by memory chip orders, while the net value of the twofold products is determined by the order of daily increases and decreases. After the regulatory authority reclaimed the right to list new products, existing products continue to trade, but the entry price for new retail investors is now controlled by margin requirements and training.
ABAB News · Cognitive Law
Twofold daily returns are affected by volatility, not trends.
First release, then ban new listings, with losses recorded in the interim.
Bringing overseas leverage back to the domestic market leaves fees with brokerages.