Trading in South Korea’s single-stock leveraged and inverse ETFs lost momentum a week after new regulatory measures took effect, with turnover staying below 1 trillion won for a second straight trading day.
Data from the Korea Exchange, or KRX, showed that the combined trading value of 16 single-stock leveraged and inverse ETFs in the local market reached 941.2 billion won on Aug. 7. That followed 919.8 billion won in the previous session, keeping the total below 1 trillion won for two consecutive trading days.
Retail entry threshold was raised
The decline in trading activity has been linked to new rules that took effect on July 31. Under the measures, the base margin requirement for ordinary retail investors in single-stock leveraged ETFs was raised from 10 million won to 30 million won in cash.
Demand is shifting rather than disappearing
South Korean securities firms said the appetite for leveraged exposure has not gone away. Instead, some of that demand appears to be moving into semiconductor leveraged ETFs and offshore-listed leveraged products, in what the market has described as regulatory arbitrage or a balloon effect.
Jeong Hyun-jong, a researcher at Korea Investment & Securities, said trading volume in single-stock leveraged ETFs fell after the regulations were introduced, but turnover in semiconductor leveraged ETFs increased. In his view, that points to money rotating into substitute products. He added that related instruments listed overseas could also become destinations for those flows.
Offshore products may absorb part of the flow
Jeong said investors may turn to overseas-listed single-stock leveraged ETFs because those products are not subject to South Korea’s domestic restrictions. He pointed to the Hong Kong-listed CSOP SK Hynix Daily (2x) Leveraged Product, which he said is currently one of the world’s largest single-stock leveraged ETF products by market value.
He also said domestic regulation alone is unlikely to fully curb investor demand tied to the semiconductor cycle and high-leverage strategies, and that the longer-term effect of the measures will need more time to assess.