"Global Spotlight on $290 Billion Leveraged ETF Market Following Plunge in Korean AI Stocks"

The recent sharp decline in South Korean artificial intelligence (AI) related stocks, including Samsung Electronics and SK Hynix, has brought renewed attention to the rapid growth of the global leveraged exchange-traded fund (ETF) market, Bloomberg reported on the 23rd (local time).

Leveraged ETFs are products designed to track the movements of underlying assets by a multiple, and they have gained popularity among retail investors seeking high returns.

On the 22nd, Samsung Electronics and SK Hynix both fell by over 12%, causing the KOSPI to drop by 9.99%.

The market is pointing to leveraged ETFs as one of the factors amplifying volatility.

According to Bloomberg data, global assets in leveraged ETFs have surpassed $290 billion (approximately 446 trillion won).

The Asian market accounts for $45 billion, while the U.S. market holds over $220 billion.

Leveraged ETFs are structured to automatically buy or sell underlying assets based on market conditions to maintain their target leverage ratios.

Consequently, this can increase buying pressure in a rising market and selling pressure in a falling market.

Nomura Securities estimates that leveraged ETFs trigger approximately $9 billion in rebalancing demand for every 1% move in the market.

Alexander Altmann of Barclays analyzed that the daily average rebalancing volume for U.S. leveraged ETFs over the past 10 trading days reached approximately $20 billion.

This is about four times the annual average level.

Altmann described this as a classic "tail wagging the dog" scenario, where leverage in the stock market creates a technical environment of risk, noting, "Regardless of fundamental valuations, leveraged ETFs are the biggest technical risk factor in the current market."

Charlie McElligott of Nomura Securities warned, "Korea is one of the epicenters of the AI bottleneck trade, and volatility is being amplified by the structural dynamics surrounding leveraged ETFs," adding that it is creating a "butterfly effect" that triggers hurricanes on the other side of the globe.

Bloomberg reported that the asset size of 16 leveraged ETFs tracking Korean semiconductor stocks, which were launched in May, has grown from $3 billion at the time of launch to over $9 billion currently.

(Photo: Yonhap News)
※ Please note: This article was translated by AI and may contain errors.