Asset Management CEO Urges Halt to Leverage Investing: What Are the Next Steps?

[Anchor]

Despite the introduction of supplementary measures for single-stock leveraged ETFs, which have been identified as a cause of increased volatility in the domestic stock market, market interest remains high.

Even the CEO of an asset management firm that offers these products has stepped forward to advise investors to stop. Reporter Min Gyeongho looks into what further measures might be in store.

[Reporter]

The market capitalization of single-stock leveraged products for Samsung Electronics and SK Hynix listed on the KOSPI stands at 9.7 trillion won.

The trading volume reached 10.4 trillion won, exceeding the market capitalization.

Although financial authorities released measures on July 16 to mitigate volatility, extreme turnover continues amid sustained high interest in these leveraged products.

Voices of concern are growing louder.

As the phenomenon of negative compounding—where the ETF principal itself shrinks during the process of repeated sharp fluctuations and the accumulation of losses and recoveries—has become severe, even the CEO of an asset management firm that operates single-stock leveraged products wrote on social media, "Stop investing."

By releasing internal analysis data, the CEO warned that when the SK Hynix stock price fell by 17.9 percent, the leveraged product fell by 47.5 percent, which is more than double the 35.8 percent decline.

Financial authorities have begun discussions with the relevant industry to see if the previously announced measures can be implemented earlier than planned.

It was decided that starting next month, the basic deposit requirement will be raised to 30 million won in cash and pre-investment training will be strengthened; the key is whether the necessary computer system updates can be completed quickly.

As the authorities aim to reduce the market capitalization to the 4 to 5 trillion won level seen during the initial listing, one of the next options being considered is the diversification of rebalancing times.

The rebalancing process, in which asset managers buy or sell the underlying stock to maintain the 2x volatility ratio, increases price fluctuations. The proposed method involves spreading out the rebalancing, which currently takes place 30 minutes before the market closes, across multiple time slots.

[Interview] Choi Jae-won / Professor, Department of Economics, Seoul National University: Extending the rebalancing time has the advantage of reducing the impact on the market, but it increases the tracking error. Situations could arise where people ask, "Samsung Electronics rose 5 percent, so why did my 2x ETF only rise 9 percent?"

Financial authorities plan to examine what difficulties exist regarding intraday rebalancing and whether there is a need to prepare separate incentives.

The KOSPI closed up at 6,747, showing high volatility amid the 39th sidecar activation of the year.

(Reported by Min Gyeongho | Video by Choi Ho-jun | Video Editing by Choi Hye-young)
※ Please note: This article was translated by AI and may contain errors.