Single-stock leveraged exchange-traded funds (ETFs) for Samsung Electronics and SK hynix listed on the Hong Kong stock market are surging, drawing investor interest. Because ETFs using a single stock as the underlying asset are not allowed in Korea, it is seen as investors seeking alternatives in overseas markets to bet on the semiconductor supercycle and maximize returns.
However, because of the nature of ETFs listed overseas, the premium/discount can widen significantly, and if trading gains on overseas-listed ETFs exceed 2.5 million won, capital gains tax is imposed, prompting advice to exercise caution.
According to the Hong Kong Exchanges and Clearing on the 17th, the "CSOP SK hynix Daily 2X Leveraged" ETF traded at 10.770 Hong Kong dollars in the morning session, up 17.64% (1.615 Hong Kong dollars) from the previous trading day. In the domestic market, SK hynix shares rose by about 4%. Although it is a 2x leveraged product, the increase reached roughly four times the underlying asset's fluctuation rate.
This also happened the previous day, the listing date. On the same day in the domestic market, SK hynix shares rose 7.1% from the previous trading day, while the ETF closed at 9.155 Hong Kong dollars, up 17.73% (1.379 Hong Kong dollars) from the listing price of 7.776 Hong Kong dollars.
Hong Kong asset manager CSOP Asset Management listed this ETF, which tracks double the daily return of SK hynix shares, on the Hong Kong Exchanges and Clearing (HKEX) on the 16th. In May, it launched 2x leveraged and inverse ETFs based on a single Samsung Electronics stock, and after confirming investor demand, it immediately expanded the product lineup.
As leveraged products debuted in step with a sharp rise in Samsung Electronics and SK hynix shares, domestic investment funds poured in. According to CSOP Asset Management, the morning turnover reached 30 million Hong Kong dollars, double the total turnover of 15 million Hong Kong dollars on the first day of listing (the 16th).
Earlier, SK hynix was designated an "investment caution item" on the 13th due to a surge in its share price and excessive buy-side involvement from a specific account, and margin trading was restricted for five trading days accordingly. Retail investors typically use margin trading for leverage, and with margin trading blocked for the time being, funds appear to have flowed into overseas leveraged ETFs as an alternative.
The Samsung Electronics 2x leveraged product also rose more than 187% from its launch in May through the previous day, outperforming the increase in Samsung Electronics common shares (81%) over the same period by more than twofold. CSOP Asset Management said, "Sixty percent of demand for the Samsung Electronics leveraged product listed in May is from Korean investors."
For now, with Samsung Electronics and SK hynix shares soaring, those who invested in the relevant ETFs are expected to reap substantial gains, but the investment risks are equally high.
Experts note that while leveraged ETFs can deliver excess returns in a rising market, losses can deepen in a downturn due to the "negative compounding effect." An official at an asset management firm said, "If the product price falls 10% in one day and then rises 10% the next day, it does not recover the principal; it ends up at a lower price than before," adding, "Do not approach leveraged products from a long-term investment perspective."
Short-term volatility is also increasing as buying concentrates over a brief period and the price premium/discount widens. In particular, this ETF is listed on an overseas exchange and is a leveraged ETF based on a single stock as the underlying asset. ▲ Differences in trading hours ▲ Quote management by liquidity providers (LPs) ▲ Exchange rate fluctuations ▲ Concentrated demand can all amplify volatility.
Lee Jae-chung, executive director at CSOP Asset Management, said, "As investor interest was strong, buying concentrated in the SK hynix leveraged product on the first day of listing, and the premium/discount widened significantly at one point in the morning," adding, "Yesterday, we asked liquidity providers (LPs), who post quotes, to manage spreads."
The exchange rate is also a key variable. Because the product is based in Hong Kong dollars, even if SK hynix shares rise, if the Hong Kong dollar weakens against the won (the exchange rate falls), actual investment returns can shrink. The Hong Kong dollar is effectively pegged to the U.S. dollar and follows the dollar's trend.
Taxation on trading gains from overseas-listed ETFs must also be considered. If trading gains from overseas-listed ETFs exceed 2.5 million won, a 22% capital gains tax is levied on the excess. For domestic single-stock shares, if you are not a major shareholder (holding equity of 5 billion won or more), capital gains tax is exempt and you only pay a 0.15% securities transaction tax, which is a key difference.