Leverage drives volatility in the world’s best-performing major equity market

South Korea’s Kospi index is having a moment. For two consecutive years, it is on track to be the best-performing major equity market on the planet, powered almost entirely by global demand for artificial intelligence chips made by Samsung Electronics and SK Hynix.

Since May 2026, more than a dozen single-stock leveraged ETFs have launched in South Korea, most of them tied to Samsung Electronics and SK Hynix. These are 2x daily return products, meaning if Samsung rises 3% in a day, the ETF is supposed to deliver 6%. Retail investors have piled in.

Here is the thing about leveraged ETFs: they require daily rebalancing to maintain their target exposure. That means the funds must mechanically buy more of the underlying stock when it rises and sell when it falls, at the end of every single trading day, regardless of market conditions. When you multiply that dynamic across a dozen products all linked to the same two stocks, the rebalancing flows start to move markets on their own.

Samsung Electronics and SK Hynix together account for nearly 60% of the Kospi’s total market capitalization. In 2025, the Kospi recorded just two trading days where the index moved more than 5% in either direction. In 2026, that count has already reached at least 20 such days.

Both the Financial Supervisory Service and the Bank of Korea have weighed in, with regulators publicly describing the leveraged ETF frenzy as resembling a casino for retail participants. In early July 2026, regulatory bodies announced plans to halt new listings of single-stock leveraged ETFs and signaled tighter supervision over how these products are marketed to ordinary investors.

Leveraged ETFs are not buy-and-hold instruments. They are built for short-term traders who understand that the daily reset mechanism creates compounding drag over longer holding periods. A 2x ETF held for a month in a volatile market can significantly underperform twice the underlying stock’s return over that same period, because gains and losses compound asymmetrically.

A halt on new listings does not necessarily force existing products to close, but tighter marketing restrictions and increased scrutiny could reduce retail inflows, potentially shrinking assets under management in these funds over time. Smaller funds face wider spreads and less efficient rebalancing, which compounds the tracking issues already inherent in leveraged ETF structures.

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