South Korea regulator admits haste on chip stock leveraged funds

South Korea’s financial watchdog has admitted it may have approved leveraged chip funds too quickly, a rare public acknowledgment that comes after retail traders piled into products tied to Samsung Electronics and SK Hynix at breakneck speed. Lee Chan-jin, governor of the Financial Supervisory Service, said the agency had been too hasty in giving the green light to the funds and was now studying stabilizing steps after issuing an investor warning.

The first single-stock leveraged products tied to Samsung Electronics and SK Hynix launched on May 27, and the appetite was immediate. Samsung Asset Management said the two products had drawn a combined 2.4 trillion won in assets under management before launch, the largest ETF debut ever in Korea. More than 100,000 investors had signed up for mandatory pre-education, and retail demand was so intense that the Korea Financial Investment Association website reportedly crashed on the first day training became compulsory.

The numbers since launch show how quickly speculation concentrated in a narrow corner of the market. The Financial Supervisory Service said the products’ market capitalization climbed from 4.5 trillion won on May 27 to 9.6 trillion won by June 12. Individual investors net-bought 8.2 trillion won of the funds in that period, accounting for 92.7% of total net purchases, while foreigners bought about 200 billion won. Average daily turnover reached 122.5%, far above the 30.2% rate for other leveraged and inverse ETFs.

The risks were not theoretical. The FSS said Samsung Electronics’ leveraged ETF suffered a maximum drawdown of 35.9% between May 27 and June 12, while the SK Hynix product fell as much as 38.0%. That happened even as the underlying shares were soaring. Reuters reported on June 22 that SK Hynix briefly overtook Samsung Electronics to become South Korea’s most valuable listed company, ending Samsung’s 26-year run at the top. SK Hynix shares were up more than 340% this year, while Samsung Electronics had gained about 200%.

The regulator’s caution lands against a broader surge in leveraged retail betting. A Bank of Korea report cited in Reuters-linked coverage said borrowed equity investment reached a record 60 trillion won by the end of May. Officials are now discussing wider regulatory improvements, while firms are already preparing similar products in Hong Kong and London. For Seoul, the challenge is no longer whether chip stocks can attract capital, but whether the market can absorb the leverage that has been built around them.