SEOUL: The world’s best-performing yet most volatile market is set to debut its first ever single-stock leveraged exchange‑traded funds (ETFs) this week, tools that have the potential to amplify gains and losses.
Linked to chipmakers Samsung Electronics Co and SK Hynix Inc, the products will seek to deliver twice the daily moves of the two stocks, both central to the global artificial intelligence trade.
Analysts expect the ETFs to draw strong demand from the nation’s more than 14 million retail investors.
Such enthusiasm, however, risks exacerbating volatility at a time when 5% intraday swings in the Kospi have become increasingly common.
“The ETFs will intensify the existing problem – the concentration risk,” said Jung In Yun, chief executive officer at Fibonacci Asset Management Global in Singapore.
“This poses a structural problem for longer-term investors as the volatility of the index will remain elevated, making it difficult to navigate the South Korean market,” Jung added.
Leveraged exchange-traded products offer investors a chance to make outsized gains on indexes, stocks, bonds or commodities by using derivatives and swap contracts to bet on the underlying assets.
They can also exacerbate swings in heavily traded names, as issuers often need to rapidly buy or sell assets to keep the funds aligned with their promised leverage ratios. — Bloomberg
