Samsung, SK hynix Leveraged ETFs Lose Half Their Value
While Samsung Electronics and SK hynix saw their share prices fall by single-digit percentages, individual investors who bought leveraged products designed to deliver twice the daily returns have suffered losses of up to half their principal. The gap between returns on the leveraged products and tho
Samsung Electronics and SK hynix experienced significant declines in their share prices, while investors who purchased leveraged ETFs designed to generate double the daily returns faced losses up to half their initial investment. The discrepancy between the returns on these leveraged products and the underlying stocks has become increasingly pronounced due to a phenomenon known as "negative compounding effect."
This structural drag causes asset values to erode over time as volatility in the underlying assets accumulates. As of September 27, Samsung Electronics' stock fell by 4.52% between May 27, when single-stock leveraged products began trading, and September 23, while its leveraged products lost around 35%. Similarly, SK hynix's stock dropped 9.26%, but its leveraged products plummeted nearly 50%, effectively losing half their value.
The primary cause of these severe losses is the unique return structure of leveraged ETFs, which track twice the daily return instead of the cumulative return over a specific period. This can result in substantial losses when a stock experiences frequent fluctuations without a clear trend. The Financial Supervisory Service had previously cautioned about these risks in a consumer alert sent out in June.
The regulation, implemented on July 31, raised the minimum deposit requirement for single-stock leveraged and inverse products from 10 million won to 30 million won. Following this regulation, trading activity in the market dropped by approximately 92% in the first month, with the average daily trading value of related products falling to 990 billion won.
The average daily turnover rate of 16 leveraged ETFs also plummeted from 43.6% to 5.9%, while the average holding period for investors increased from 2.3 days to 16.9 days. Industry experts caution that leveraged products should only be used for short periods with a clear directional trend and that positions should be reviewed frequently.
Written by urgent.news from BusinessKorea's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
