South Korea Warns of Leveraged Products Amplifying Chip Stock Volatility
South Korea's central bank has alerted parliament to the risks posed by leveraged financial products traded offshore that are heavily influenced by the nation's chip manufacturers. In its semi-annual monetary policy report, the bank highlighted that the rapid growth of these instruments, particularly those tracking Samsung Electronics and SK Hynix, is increasing volatility on the Seoul stock exchange and widening the channels through which foreign capital impacts the local market.
Leveraged exchange-traded funds (ETFs) traded in Hong Kong, which offer amplified daily movements of underlying assets like chip stocks, saw their market value surge more than twentyfold in the first half of 2026. These products, often built on futures and swaps rather than direct stock ownership, provide investors with magnified exposure. Global banks facilitating these products hedge their risk by trading in Korean stocks, futures, and options, creating real demand and supply on the Seoul exchange.
The report cited U.S. hedge fund Situational Awareness as an example, noting its use of up to four times leverage in building and unwinding positions in global memory chipmakers' stocks during a sharp July downturn. This timing exacerbated market movements, as sales coincided with a broader market exit. BlackRock's U.S.-listed ETF on the Korean stock market, with a quarter of its portfolio in SK Hynix, raised a record $2.8 billion in a single week in July, with funds flowing through New York to Seoul.
Memory stocks have become a key avenue for foreign investors betting on artificial intelligence, driven by the demand for high-bandwidth memory chips for data center construction. Samsung and SK Hynix have benefited from this trend, attracting leveraged products that offer increased exposure. The concentration of this exposure in just two companies means that rapid position unwinding can have a disproportionately large impact on the local market.
The Bank of Korea noted that volatility in the KOSPI index from January to July was unprecedented, attributing it to the high concentration of chip stocks, foreign investor portfolio rebalancing, and the unwinding of leveraged positions. The report also mentioned an unusual transaction in SK Hynix stock in July that triggered approximately $60 million in position liquidations on an offshore crypto exchange trading stock derivatives, illustrating the increasingly interconnected nature of global financial markets and the challenges for local regulators.
Even Israeli investors holding exposure to these companies through emerging market and semiconductor indices are affected, as daily stock fluctuations directly impact their savings. Israeli equipment suppliers to Samsung and SK Hynix are also sensitive to the investment cycles of these memory giants, with Chinese competition in the memory market adding another pricing variable.
