Behind the Korean Stock Market's Sharp Decline—Retail Investors Leverage Up Bets on Samsung and SK Hynix

South Korea’s stock market has recently experienced record-breaking crashes and strong rebounds, with two leveraged ETFs linked to Samsung Electronics and SK Hynix increasingly viewed by market participants as structural factors amplifying volatility.

After the outbreak of the Iran conflict, South Korea’s stock market, valued at nearly $4 trillion, was hit hard, recording the largest single-day decline in history, followed by the biggest single-day gain since 2008.

Listed in Hong Kong, the CSOP SK Hynix 2x Daily Leveraged Product and the CSOP Samsung Electronics 2x Daily Leveraged Product, with a combined management scale of $3.3 billion, utilize daily rebalancing mechanisms to continuously amplify price fluctuations during key trading periods.

South Korean financial regulators have convened industry-specific meetings to address leveraged investment risks. External warnings suggest that as Seoul plans to allow such high-risk products to be listed domestically, future market volatility under stress scenarios could become even more intense.

Two chip stocks influence the entire market

Samsung Electronics and SK Hynix together account for nearly 40% of the Korea Composite Stock Price Index (KOSPI) and make up half of the MSCI Korea Index weight. Their price movements have a decisive impact on the overall market.

This highly concentrated structure has long been regarded as risky by the industry, but before the Iran conflict triggered market turbulence, few considered it an urgent threat.

Due to Seoul’s ban on single-stock leveraged ETFs listing domestically, many Korean investors have turned to alternative products listed in Hong Kong. The two leveraged ETFs issued by Chinese asset manager CSOP have become among the firm’s largest funds.

Jung In Yun, CEO of Fibonacci Asset Management Global, said:

“The rapid expansion of leveraged ETFs related to Samsung Electronics and SK Hynix is beginning to add a layer of structural volatility to the Korean market. Given the significant weight of Samsung and SK Hynix in KOSPI, this creates a feedback loop that amplifies index fluctuations and raises concerns about more intense volatility during future stress periods.”

Daily rebalancing as a volatility amplifier

Leverage products require daily rebalancing to maintain targeted exposure. When markets decline, long-leveraged funds typically reduce their holdings by selling futures or underlying stocks, which can mechanically deepen the downturn.

A UBS trading desk memo obtained by Bloomberg shows that on March 3, when SK Hynix’s stock price plunged 16%, fund flows from rebalancing accounted for up to 60% of the trading volume in the last hour before the close; on other recent trading days, such flows made up about 30% of total volume.

Leverage ETFs tracking the Korean market previously received little attention until late last year, when the KOSPI recorded some of the world’s leading gains, prompting a surge of capital into related products. According to Bloomberg, as of March 5, 2026, global net inflows into Korea-tracking leveraged ETFs reached $4.4 billion this year, potentially setting a quarterly record.

Although this scale accounts for less than 20% of total Korean ETF inflows, market participants note that the daily rebalancing mechanism causes its impact on volatility to far exceed what its asset size suggests.

Even amid market turmoil triggered by the Iran conflict and soaring energy prices, investor buying enthusiasm remains strong. Bloomberg data shows that over the past week, CSOP’s SK Hynix and Samsung leveraged products ranked second and fourth in net inflows among global leveraged ETFs tracking the Korean market.

Retail leverage and foreign capital profit-taking combine

Leverage ETFs are not the only drivers of this wave of volatility. As the KOSPI rose nearly 140% over the past year until February 27, foreign investors began to take profits after the Iran conflict erupted. Meanwhile, retail investors, heavily leveraged with borrowed funds, faced forced liquidations due to sharp declines, forcing them to unload positions en masse.

“This is a market driven by retail leverage,” said Rob Li, managing partner at Amont Partners in New York, commenting on the Korean market. “When large leverage is combined with geopolitical shocks, it naturally triggers much higher volatility.”

However, Chan H. Lee, managing partner at Seoul-based hedge fund Petra Capital Management, believes that behind this intense volatility, professional global macro and multi-strategy institutions should not be overlooked.

“These ETFs are very likely used by so-called multi-strategy ‘sub-funds’ (pod shops),” Lee said. “Their combination of global macro quantitative leverage strategies causes price swings that are far more rapid than those driven solely by retail trading.”

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