US Asset Managers Push for Japan Single-Stock Leverage ETFs, Igniting Volatility Warnings

As U.S. asset management firms actively pursue the listing of single-stock leverage and inverse ETFs based on Japanese companies, concerns over extreme stock price volatility are growing louder.

According to Bloomberg, major U.S. managers such as Kurv Strategies and GraniteShares have applied for regulatory review of at least nine products, including ETFs that seek to track twice the daily return or the inverse return of Japanese memory chip maker Kioxia's stock and American Depositary Receipts (ADRs).

If approved, Kioxia will become the first Japanese company to serve as the underlying asset for a single-stock leverage ETF.

In addition, other managers like Tuttle Capital and Direxion are successively considering the launch of leverage products tied to underlying assets such as SoftBank Group, Nintendo, Toyota Motor, and Tokyo Electron.

However, concerns significantly outweigh expectations in the global financial market.

To achieve their daily target returns, leverage ETFs must undergo massive position adjustments, known as rebalancing, near the market close every day. If investment capital surges during this process, stock price distortions can intensify.

Foreign media outlets, in particular, cited the side effects recently observed in the South Korean stock market as a prime warning example.

Andrew Jackson, head of Japan equity strategy at Ortus Advisors, explained in an interview with Bloomberg that, much like what was seen in South Korea, leverage ETFs distort normal market mechanisms and significantly amplify volatility.

He pointed out that this "amplifies speculative overheating centered on AI-related stocks, impairs the market's normal price discovery function, and blocks access for long-term investors."

At the same time, Bloomberg added that if the trading volume of the underlying assets is sufficiently high and fund sizes do not expand excessively, the resilience of the Japanese stock market may be able to control the volatility caused by rebalancing to some extent.

(Reported by Lee Hyeon-yeong | Video by Choi Gang-san | Graphics by Lee Su-min | Produced by SBS Digital News)
※ Please note: This article was translated by AI and may contain errors.