SEOUL: The Bank of Korea (BoK) warned that single-stock leveraged exchange-traded funds (ETFs) tied to Samsung Electronics Co and SK Hynix Inc could deepen market concentration, amplify volatility and intensify one-way trading flows, according to a local report.
“With Samsung and SK Hynix accounting for more than half of stock market capitalisation and trading volume, expanding investment in single-stock leveraged ETFs could further intensify this concentration,” the central bank said in a written response submitted to People Power Party lawmaker Park Sung-hoon, Yonhap reported.
The BoK said the products could amplify one-way trading as inflows and outflows grow in response to shifts in business conditions or market expectations.
It also warned that, in the event of a correction, losses for retail investors could widen, while increased redemptions or portfolio rebalancing could add to share-price volatility.
The BoK plans to strengthen monitoring of the impact of single-stock leveraged ETFs on the stock market and financial system, Yonhap reported.
Last month, South Korea’s Financial Supervisory Service Governor Lee Chan-jin said he regretted not blocking their launch, warning their negative side effects have grown significantly. — Bloomberg
