South Korea's Chip Leveraged ETF Trading Volume Drops to 4% Peak, Mandatory Simulation Trading Forces Retail Investors Out
On August 30, the trading volume of Samsung Electronics and SK Hynix's double single-stock leveraged ETFs has dropped to 4% of the peak in June, with related products possibly recording their first monthly net outflow since launch in August. Since July, South Korea has been tightening trading rules, with the mandatory simulation trading requirement that took effect on August 19 being considered a significant reason for the decline in retail participation.
According to the new regulations, investors must complete a 5-day simulation trading course, downloading a program that only supports Windows systems on their computers, and trading with virtual funds for at least 1 hour each day. The system provides investors with 100 million won in virtual funds to demonstrate the risks of leveraged products and "volatility decay." Investors must also meet a minimum cash deposit requirement of 30 million won. The Korea Exchange has stated that there are currently no plans to launch a mobile simulation trading platform.
The single-stock leveraged ETFs related to Samsung Electronics and SK Hynix were launched in May this year, originally aimed at attracting retail funds back to the South Korean domestic market. During peak trading periods, these leveraged ETFs accounted for over 80% of the total trading volume in the South Korean stock market, along with the stocks of the two chip companies, leading to significant market price fluctuations.
Data shows that the related ETFs experienced a total net outflow of about $1 billion in August, with assets under management dropping from a peak of $11.4 billion in late June to $5 billion as of August 27. In addition to regulatory restrictions, concerns about high capital expenditures and commercialization prospects in the AI industry have triggered multiple rounds of global tech stock sell-offs, also contributing to the decline in asset size.
Analysts indicate that as regulators continue to tighten rules, related fund outflows may persist in the short term. The cooling of trading activity has also alleviated market volatility, with the volatility index of the Korea Composite Stock Price Index dropping from 97 in late June to about 50, marking a 4-month low. The benchmark index of the South Korean stock market has risen 61% this year, but it is still 25% lower than the historical high set two months ago.
-- Price
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