Korea's Leveraged ETF Blowup Is the Cleanest Read on What's Unwinding
A single-stock leverage product on SK Hynix is down more than 80% from its June peak, the finance minister has apologised, and US retail margin balances are up 67% — the same trade, at different stages.
The retail leverage unwind, quantified
Korea has given markets an unusually precise measure of how much of the AI rally was borrowed money. Since single-stock leveraged ETFs were introduced on 27 May, Korean retail investors bought a net 14 trillion won ($9.7 billion) of them versus roughly 2 trillion won by foreigners, per KB Financial Group. The KODEX SK Hynix Single Stock Leverage ETF, designed to deliver twice the daily move, has fallen more than 80% from its 23 June peak; the Samsung equivalent is down almost 75% from 3 June. The Kospi has lost almost 35% over the past month, closing 6% lower Wednesday after being down as much as 12.6% intraday. Finance minister Koo Yun-cheol accepted lawmakers' demand for an apology, and the Financial Services Commission's Lee Eog-weon said regulators are considering restricting the products to professional investors and cutting the 2x multiple, which he called "too large."
The same behaviour, earlier in the cycle, in the US
Interactive Brokers' Q2 gives the American mirror image: clients held $108.5 billion in margin loans as of 30 June, up 67% year over year, with 4.82 million daily average revenue trades (up 34%, accelerating from 24% in Q1) and a record 5.19 million accounts, up 30%. Revenue climbed 28% to $1.9 billion, accelerating from 17%. This is not a defensive posture — investors borrow that aggressively when they are confident markets go higher, and they are doing it with the S&P 500 down 3% from its record high and the Nasdaq-100 down 9%. Read alongside Korea, it flags where the reflexive selling would come from if the drawdown extends.
The bull case is a rotation case
Strategists led by Max Kettner are going all-in on equities on the argument that stocks have stayed resilient through geopolitical volatility and the tech pullback — with oil up 40% and tech tumbling, that resilience implies the index is being carried by non-tech sectors. Tuesday's US session supports the mechanism: indices bounced back on a heavy rotation of sectors, the same session in which Apple briefly topped $5 trillion. The tension worth naming is that this thesis requires the AI complex to correct without dragging the aggregate down — precisely what Korea failed to do.
Retail's appetite for single names hasn't broken
Despite the leverage damage, direct equity enthusiasm persists: more than 100,000 individual UK investors applied for just under $1bn of SpaceX shares in its market debut, putting DIY investing back in the spotlight. The standard cautions apply and are worth restating in this tape — concentrated single-stock portfolios carry more idiosyncratic risk than funds, and on valuation, Fidelity's Jemma Slingo notes the average FTSE 100 company trades at a P/E of about 12 with no objectively good or bad level, while a high multiple is only justified by durable growth.
Sources
- Minister apologizes as Korean leveraged ETF investors nurse heavy losses amid chip stock rout (cnbc)
- S. Korea’s KOSPI rebounds to close 6% in red; SK Hynix drops 10% (investing_com)
- 1 Unstoppable Growth Stock That Could Soar if a Bear Market Is Coming (yahoo_finance)
- Oil is up 40% and tech is tumbling. Why it’s time to go all-in on stocks, according to these bullish strategists. (marketwatch)
- Morning Bid: US profit growth mushrooms (yahoo_finance)
- ‘Ask the right questions’: what you need to know before buying shares (guardian_business)
Not investment advice.