South Korea’s roller-coaster market, driven by sharp swings in semiconductor giants Samsung Electronics and SK Hynix this year, has also reverberated in Hong Kong, where suspected fund embezzlement by a loss-making investment manager and outcry from leveraged-product investors have made headlines.
As an international financial centre, Hong Kong serves as a crucial gateway to access the Seoul stock market, with Futu Holdings – the Nasdaq-listed Chinese broker – just launching South Korea share trading and CSOP Asset Management’s leveraged product drawing strong interest.
But as SK Hynix faces a brutal sell-off, investors are being warned about the risks of buying high-volatility semiconductor stocks on margin. The warning comes as CSOP’s Hong Kong-listed exchange-traded product (ETF) linked to the tech giant – known as CSOP SK Hynix Daily (2x) Leveraged Product – plunged more than 30 per cent on Tuesday. The downward trend continued on Wednesday, with the price dropping by up to 25 per cent at one point.
The product surged to an all-time high of HK$193.65 (US$24.69) in late June, with its market capitalisation briefly surpassing HK$130 billion (US$16.57 billion) – making it Hong Kong’s largest ETP – before collapsing 80 per cent since the start of July.
Steven Leung, executive director of institutional sales at UOB Kay Hian, said the sell-off had been driven by fears of rising competition from China’s memory giant ChangXin Memory Technologies after a huge fundraising round, as well as growing doubts over the long payback period for major AI investments.
The sharp decline tracks a broader sell-off in South Korea, where the Kospi index tumbled more than 11 per cent on Tuesday, triggering its eighth circuit breaker this year. The index also fell below 6,000 points for the first time since April 14, and is now down more than 35 per cent from its June peak.
Meanwhile, Hong Kong-based Futu has just launched direct Korean stock trading for users, who can trade over 2,700 Kospi and Kosdaq stocks – including SK Hynix and Samsung – without opening new accounts or exchanging currency, greatly streamlining access.
The service builds on the real-time market data feature introduced by Futu in April, with the online brokerage saying it had responded to rising investor demand for easier access to the Korean market.
But as Futu makes it easier to enter the market, the South Korean stock market has already reversed course.
Leading semiconductor stocks in Japan and South Korea have dropped 40 to 50 per cent from their peaks, “technically entering bear markets,” Leung said. But he noted that most institutional investors had not fully exited, even as many were being forced to trim their positions because of stop-loss triggers.
Meanwhile, an investment manager at a Hong Kong wealth management company – suspected of misappropriating HK$50 million to speculate on CSOP’s SK Hynix ETF using margin leverage – incurred more than HK$150 million in paper losses amid high volatility, according to people familiar with the matter.
“Given current volatility, adding leverage is entirely unnecessary. Buying the underlying physical shares is far safer than playing with leveraged derivatives,” Leung said.
Hong Kong’s Securities and Futures Commission (SFC) stepped in last week, ordering issuers of these high-risk funds to incorporate safety buffers that allow them to flexibly adjust their leverage exposure when markets turn volatile.
Under the new rules, the leverage factor can vary each day, but it still cannot exceed the existing limit of doubling gains or losses.
The SFC has also reclassified leveraged and inverse (L&I) products. Unlike traditional ETFs, which are meant for long-term investing, L&I products are designed for day trading. As a result, the SFC no longer allows them to be called ETFs. They must now be labelled clearly as “leveraged product” or “inverse product”. -- SOUTH CHINA MORNING POST
