Leverage in South Korean chip stocks has spiraled out of control. The total assets of an SK Hynix single-stock leveraged ETF are approximately $19 billion, more than four times its average daily trading volume. Samsung-related leveraged ETFs, with assets of approximately $12.4 billion, also exceed their average daily trading volume by 176%.
In contrast, the asset sizes of leveraged ETFs for Micron, Tesla, and Nvidia are far lower than their average daily trading volumes. The concentration of leverage in the South Korean market is unparalleled among major global stock markets.
This means that when SK Hynix's stock price fluctuates, forced liquidation or margin calls in leveraged ETFs can amplify selling pressure, potentially leading to a stampede. The Hong Kong-listed 2x leveraged SK Hynix ETF, with assets of approximately $13 billion, is twice SK Hynix's average daily trading volume. If the trend reverses, these leveraged products could accelerate the decline.
The high leverage in South Korean chip stocks is not unrelated to the cryptocurrency market. Some South Korean retail investors are active in both the cryptocurrency and stock markets, and the chain reaction of leverage could potentially spread between the two markets. SK Hynix's US IPO next week, valued at $29 billion, may attract more capital, but its vulnerability under high leverage cannot be ignored.
Market sentiment is neutral to weak; funding rates indicate a weakening of bearish sentiment but no bullish consensus has formed. The leveraged structure of South Korean chip stocks may be the most undervalued tail event at present.
