Hong Kong retail investors reel as SK hynix ETF swings turn painful
A visitor walks past the logo of SK hynix during the Korea Electronics Show 2025 at the Coex convention and exhibition center in southern Seoul, Oct. 22, 2025. AFP-Yonhap
By Yulu Ao
Explosive growth in AI-linked products raises concerns over market volatility
When Emily Yang, a 30-year-old office worker in Hong Kong, invested more than 100,000 Hong Kong dollars in a leveraged exchange-traded fund (ETF) linked to SK hynix in late June, she thought she was buying into one of the world's strongest artificial intelligence (AI) stories.
Instead, within a week, nearly half of her investment had disappeared.
"Everyone around me was talking about AI and how strong SK hynix's prospects were," Yang said. "Its memory technology looked more competitive than Samsung's, and the valuation didn't seem expensive considering its earnings growth. But now I really regret following the crowd."
Now deeply underwater, Yang says she no longer knows what to do.
"Selling now would mean locking in heavy losses, while averaging down feels too risky. All I can do is wait," she added.
Yang is far from alone.
A wave of retail enthusiasm over AI has turned leveraged products linked to Korea's largest chipmakers into one of Asia's hottest trades this year. At the center of the frenzy is the CSOP SK hynix Daily (2x) Leveraged Product, which briefly became the world's largest single-stock leveraged ETF after assets under management swelled to $13 billion in June, as investors piled into amplified bets on the AI boom.
The explosive growth of the leveraged products has also made it something far more unusual: an ETF so large that market participants increasingly believe they are influencing the stock it was designed to track.
Goldman Sachs in a June 14 report estimated that Korea's leveraged ETF market has expanded to roughly $40 billion this year, with foreign-listed products accounting for about half of the total notional leveraged exposure.
Meanwhile, Goldman Sachs said Korea's equity market has become increasingly sensitive to leveraged ETF dealer rebalancing, options-related gamma hedging and retail margin positioning, which can amplify price swings during periods of heightened volatility.
On days when the market moves 5 percent, dealer rebalancing flows generated by leveraged ETFs could reach $4.7 billion in Korea, while rebalancing linked to SK hynix alone could exceed 20 percent of the stock's average daily trading volume, according to the investment bank.
That dynamic has become painfully visible as SK hynix entered a sharp correction in recent weeks, after nearly tripling from the start of the year to a record high in late June.
As of Friday, the stock had fallen about 25 per cent from its record high on June 22, dragging the CSOP ETF linked to SK hynix down by nearly half from its peak of 187.65 Hong Kong dollars. Its assets under management also shrank by more than 30 per cent to $8.8 billion from June 30 to July 9.
As volatility intensified, CSOP issued two premium-risk notices last week, warning investors against buying the ETF at elevated prices. The alerts, however, did little to dampen retail demand.
SK hynix logo and rising stock graph are seen in this illustration taken, June 11. Reuters-Yonhap
On Futu, one of Hong Kong's largest online brokerages, discussions surrounding the ETF have become among the platform's busiest. During market hours, dozens of new posts appear within minutes as investors share screenshots of six-figure losses, debate whether to average down and speculate on when the stock might finally stabilize.
One investor wrote that he had invested 2.8 million Hong Kong dollars — including borrowed money and nearly all of his family's savings — into leveraged bets on memory-chip stocks during the rally. After the recent sell-off, his account had fallen to just over 170,000 Hong Kong dollars.
"I haven't slept properly for more than two weeks," the investor wrote. "I still have four elderly family members and three children to support. I just wanted my family to have a better life."
The rapid rise of leveraged products has drawn increasing scrutiny from market participants and regulators alike. Unlike conventional ETFs, leveraged products are designed to deliver a multiple of a stock's daily return rather than its long-term performance. During volatile markets, the need to rebalance positions at the end of each trading day can reinforce price swings, according to analysts.
For example, the CSOP leveraged ETF linked to SK hynix traded at premiums of as much as 12 percent above its net asset value in June through June 24, highlighting the risks facing investors who bought into the frenzy, according to global rating firm Morningstar.
CSOP declined to comment for the story.
"These funds must adjust their exposure at or near the market close," said Hong Hao, chief investment officer at Lotus Asset Management.
"A sharp intraday drop forces the ETF to mechanically dump a massive volume of shares or derivatives to scale down its exposure. This mimics a traditional short-gamma position, adding structural downward pressure right into a declining market."
SK hynix set pricing for its mega U.S. listing, Friday, raising $26.5 billion as it takes advantage of the artificial intelligence boom in what is expected to be one of the world's biggest stock sales. AFP-Yonhap
The recent correction has also renewed concerns in Korea, where regulators have begun scrutinizing single-stock leveraged ETFs tied to Samsung Electronics and SK hynix over fears that they may amplify market volatility. Financial authorities have said they will examine the products' impact on one-sided trading and excessive concentration in major chip stocks.
Hong cautioned that tighter regulation may ultimately be necessary, but warned that reducing leverage too aggressively also carries risks.
"These leveraged products produce massive price swings and can distort the closing price of the underlying assets," he said. "But deleveraging must be conducted carefully. Even with the best intentions, it is difficult not to trigger a broader bubble-burst event."
“Single-stock leveraged and inverse products have surged on momentum-driven demand in Hong Kong, but their concentration, volatility drag, high fees and trading frictions make them unsuitable for most buy-and-hold investors,” Jackie Choy, a senior principal of passive investment strategy ratings at Morningstar, said in a June 25 note.
For Yang, the lesson has already come at a considerable cost.
"If I had another chance," she said, "I would rather buy the stock itself than use leverage. I underestimated how quickly leverage could turn a good investment into a nightmare."
Yulu Ao is a reporter with the South China Morning Post. She is currently based in Seoul, writing for both The Korea Times and the South China Morning Post under an exchange program.