1 week ago
South Korea’s Leveraged ETFs Turn Stock Market Into Fright Ride
South Korea introduced new funds in May that let people make bigger bets on individual stocks.
These funds focused on Samsung and SK Hynix.
They used borrowed money and financial contracts to double the daily movement of the stocks.
If a stock rose 5%, the fund could rise 10%.
If the stock fell 5%, the fund could fall 10%.
This can make profits happen faster.
It can also make losses happen faster.
The market then experienced a fall, described as a frightening ride.
The article links the market’s volatility to the introduction of these leveraged funds.
South Korea’s market fall followed the May introduction of its first single-stock leveraged ETFs.
The ETFs used debt and derivatives to double investors’ bets on Samsung and SK Hynix.
A 5% daily gain in an underlying stock produced a 10% rise in the leveraged ETF.
A 5% daily decline in an underlying stock produced a 10% fall in the leveraged ETF.
The report describes South Korea’s stock market as unusually volatile after these products were introduced.
- Who
- Investors and the South Korean stock market were affected; the ETFs focused on Samsung and SK Hynix.
- What
- South Korea introduced its first single-stock leveraged ETFs, followed by a market fall.
- Where
- South Korea.
- When
- The ETFs were introduced in May; the article does not specify when the market fall occurred.
- Why
- The ETFs used debt and derivatives to double the daily gains or losses of the underlying stocks.
Key facts
- Products
- South Korea’s first single-stock leveraged exchange-traded funds
- Introduction
- May
- Underlying stocks
- Samsung and SK Hynix
- Financial tools
- Debt and derivatives
- 5% stock gain
- A 10% rise in the leveraged ETF
- 5% stock decline
- A 10% fall in the leveraged ETF
Sources
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