(Aug 4): Trading in leveraged exchange-traded funds (ETFs) tied to South Korea’s two chip giants has shrunk sharply, after authorities took steps to slow demand for the products that fuelled recent market volatility.

The Kodex single-stock ETF tracking SK Hynix Inc, the biggest of its kind in the country, saw its trading volume drop to 59 million shares on Monday, the lowest since June 4. Its smaller peer linked to Samsung Electronics Co also had the least number of shares changing hands since its launch in late May. 

The plunge in trading activity came after regulators last month adopted cooling measures, including a higher minimum cash deposit requirement for investors and a temporary ban on new listings of such ETFs. The funds, which use derivatives to amplify returns, had fuelled a retail trading frenzy that’s transformed Korea’s US$3.7 trillion (RM15.15 trillion) stock market into one of the world’s most turbulent. 

“Speculative leverage froth in major tech names is neutralised from both the upside and downside,” said Peter Park, a Korea equity sales associate at NH Investment & Securities. “Because investors can sell existing holdings without restrictions but face high cash barriers for new buys, speculative retail leverage churn has effectively ended.”

Effective July 31, authorities raised the minimum deposit requirement — or minimum account balance in cash required — for leveraged ETF trading to 30 million won (US$21,065 or RM86,000) from 10 million won. Earlier in the month, regulators also said new listings of single-stock leveraged ETFs would be temporarily suspended until market conditions stabilise.

The benchmark Kospi Index, a bellwether of the global AI trade, remains up about 48% this year. The surge has come at a cost of extreme volatility, with trading halting an unprecedented four times in July.

Uploaded by Chng Shear Lane