An unprecedented situation has unfolded in South Korea’s financial markets: Bae Jae-kyu, CEO of leading asset manager Korea Investment Management, has publicly advised investors to stop putting money into products launched by his own company. By effectively acknowledging the dangers of single-stock leveraged ETFs—widely blamed for fueling the recent wild swings in the domestic equity market—the head of a major asset management firm has sent shockwaves through the industry.
In a social media post on July 20 titled “Performance Analysis of Single-Stock Leveraged and Inverse 2x Products,” Bae wrote, “The message is: do not invest in single-stock leveraged and inverse 2x ETFs,” adding, “I hope investors will stop investing, even now.” The post has since been deleted.
He explained that “even if the underlying stock returns to its original price over time, there is a high probability that the ETF price will not,” and that “especially when the underlying stock’s volatility is as high as it is now, the structure is such that losses compound daily.” He added, “This is because no one could have predicted volatility would become this extreme.”
According to analysis data disclosed by Bae, SK hynix’s share price fell 17.9% from 2.24 million won (approximately $1,521) on May 27 to 1.84 million won (approximately $1,249) on July 16. Over the same period, the SK hynix single-stock leveraged product plummeted 47.5%, far exceeding the theoretical loss rate of 35.8%. Even the inverse ETF—designed to profit in a down market—posted a 31.1% loss, exposing fundamental structural flaws in the product design.
This warning comes amid mounting criticism that single-stock leveraged ETFs are driving explosive volatility in South Korea’s equity market. The Samsung Electronics and SK hynix single-stock leveraged ETFs, listed in late May, have been blamed for exacerbating the concentration of capital in semiconductor stocks. In fact, from June 16 to July 15, a total of 7.34 trillion won (approximately $5.0 billion) flowed into 16 single-stock leveraged and inverse products.
By product, the KODEX SK hynix Single-Stock Leveraged ETF attracted 3.45 trillion won (approximately $2.3 billion), the largest inflow among all ETFs. It was followed by the KODEX Samsung Electronics Single-Stock Leveraged ETF (1.51 trillion won), TIGER SK hynix Single-Stock Leveraged ETF (1.43 trillion won), and TIGER Samsung Electronics Single-Stock Leveraged ETF (694 billion won). During the same period, SK hynix and Samsung Electronics shares fell 19.49% and 24.33%, respectively, but the KODEX products—which saw the largest inflows—plunged 45.60% and 48.44%, respectively, inflicting far greater losses than the underlying stocks.
Financial authorities announced supplementary measures on July 16, but market anxiety has not subsided. At a Cabinet meeting held at the presidential office on July 21, President Lee Jae-myung directly instructed Financial Services Commission Chairman Lee Eok-won to devise additional measures, stating that “supplementary measures must be prepared swiftly and thoroughly.”
President Lee said, “There are criticisms that the FSC’s announced measures are insufficient, and that implementation is either immediate or too far off,” emphasizing, “Act swiftly and take necessary responses boldly.” He specifically noted, “There is criticism that the market has amplified instability more than necessary,” adding, “While the policy may have aimed at exchange rate stability, ordinary citizens should not have to factor in such considerations.”
Chairman Lee Eok-won responded, “We will continue to monitor market impacts and examine whether additional measures are needed.” Regarding the rationale for introducing single-stock leveraged products, he explained, “There were about 20 trillion won (approximately $13.6 billion) in leveraged products on Korean stocks listed in Hong Kong, which recently decreased to 17 trillion won (approximately $11.5 billion), and domestic investor participation also declined. Some argue that without these domestic products, capital would have flowed overseas even more.” Kim Yong-beom, presidential chief of policy, also emphasized the reduction in overseas capital outflows, stating, “Last year, South Korea saw $140 billion in overseas securities investment, but this year through June, it amounted to only $2.8 billion.”
However, in response to criticism that these products amplified market volatility, Chairman Lee countered that the fundamental cause lies in the heightened volatility of semiconductor stocks themselves. He said, “Fundamentally, global semiconductor stocks are experiencing extreme fluctuations right now. Not only ours, but Japan’s Kioxia and the U.S.-based SanDisk are swinging even more.” He noted that with Samsung Electronics and SK hynix accounting for 53% of KOSPI’s total market capitalization, the impact of global semiconductor volatility is further magnified.
Previously, the FSC announced supplementary measures for single-stock leveraged products, including raising the base deposit requirement threefold from 10 million won (approximately $6,783) to 30 million won (approximately $20,348), mandating three hours of pre-trade education, and expanding the minimum trading unit to 20 shares. New listings will also be temporarily suspended. These measures are set to be implemented in phases starting next month.
Market experts are divided on the effectiveness of these measures. Lee Jun-seo, president of the Korean Securities Association, assessed them as “meaningful measures to protect investors in line with the high-risk nature of these products.” He explained, “These products were originally designed for institutional or foreign investors’ risk hedging and arbitrage trading, not for retail investors. Blocking the entry of potentially reckless new investors in advance provides a clear protective effect.”
Conversely, an asset management industry insider who requested anonymity pointed out, “From the start, allowing leveraged ETFs on only two stocks—Samsung Electronics and SK hynix—created an excessive concentration of capital. These measures may ultimately serve only as a buffer that slightly reduces the intensity of market shocks.”
Meanwhile, the KOSPI surged sharply on the day, triggering a buy-side circuit breaker. According to the Korea Exchange, at 12:41:29 p.m., the KOSPI 200 futures index rose 53.44 points (5.17%) from the previous close to 1,086.58, suspending program buy orders for five minutes. A KOSPI sidecar is triggered when KOSPI 200 futures prices rise more than 5% from the reference price and sustain that level for one minute. At the same time, the KOSDAQ index, which had been declining in the morning, turned positive to rise 0.5% to 753.40.
The KOSPI had plummeted 28.51% over the course of a month, from its all-time high of 9,114.55 on June 22 to 6,516.27 by July 20. During that period, approximately 1,877 trillion won (approximately $1.3 trillion) in market capitalization evaporated. Amid this extreme volatility, a sell-side circuit breaker was triggered on the KOSDAQ market the previous day, July 20. KOSDAQ 150 futures fell more than 6% and the KOSDAQ 150 index dropped more than 3% for one minute, halting program sell orders for five minutes. So far this year, KOSDAQ sell-side circuit breakers have been triggered a total of 10 times.
Some argue that supplementary measures alone cannot resolve the adverse effects single-stock leveraged products have brought to South Korea’s equity market, and that stronger actions—including potential delisting—are necessary. Addressing this, presidential policy chief Kim Yong-beom appeared on KBS’s “Sunday Diagnosis Live” on July 19 and said, “Delisting is hard to imagine. If delisting were to occur, it would itself deliver an enormous shock to the market. The outstanding positions would have to be unwound.”
Bae Jae-kyu’s extraordinary warning is likely to be remembered as a symbolic event exposing the structural risks of the ETF market. Korea Investment Management currently operates the ACE Samsung Electronics Single-Stock Leveraged ETF and the ACE SK hynix Single-Stock Leveraged ETF. For a CEO to publicly tell investors not to invest in products managed by his own firm is virtually unprecedented in the history of South Korea’s asset management industry. This underscores just how extremely unfavorable the current market conditions and product structures have become for investors.
Voices in the market are increasingly calling for voluntary risk management efforts by asset managers to accompany additional government measures. A securities industry insider stressed, “In a down market, leveraged ETFs can suffer losses that grow exponentially beyond the decline rate of the underlying stock due to the negative compounding effect. In periods of extreme volatility, investors must recognize that holding these products long-term—outside of very short-term trading—can lead to catastrophic results.”