As the market for leveraged ETFs that track individual stocks such as Samsung Electronics and SK hynix grows rapidly, the so-called "short gamma" risk is amplifying volatility in Korea's stock market. On the 23rd, when the KOSPI plunged nearly 10%, a dominant view held that mechanical rebalancing by these products fueled selling that deepened losses.
According to the Korea Exchange (KRX) on the 25th, as of the 23rd, the net worth (AUM) of 14 long leveraged ETFs on Samsung Electronics and SK hynix stood at about 16 trillion won. On the same day, the transaction value reached 15.7 trillion won. That means trading equivalent to the entire ETF asset scale took place in a single day.
For SK hynix leveraged ETFs, the transaction value was 11.4 trillion won against 10.6 trillion won in net worth, and for Samsung Electronics leveraged ETFs, the transaction value was 4.3 trillion won against 5.4 trillion won in net worth. As the two stocks slumped about 12% intraday, the net asset value (NAV) of related ETFs fell by nearly 25%.
Short gamma refers to a structure that buys more when prices rise and sells more when they fall. Originally a concept used in the options market, leveraged ETFs share similar characteristics.
For example, if an investor buys a 2x leveraged ETF with 100 million won, the ETF must maintain stock or futures positions worth 200 million won, twice the actual investment. If the underlying asset rises afterward, it buys more to meet the target multiple; conversely, if it falls, it must reduce holdings. The result is a structure that magnifies gains in rising markets and deepens losses in falling markets.
A similar phenomenon likely emerged during the latest plunge. When prices fall and the net worth of leveraged products declines, they must reduce exposure to the underlying asset to maintain the target multiple. The sequence of price declines → ETF asset decreases → position reductions → additional selling can repeat, potentially heightening volatility.
In particular, the impact is sizable because Samsung Electronics and SK hynix wield outsized influence in the domestic market. The two stocks account for about half of the KOSPI's market capitalization and more than 70% of net profit. Analysts say that if semiconductor sentiment wavers, rebalancing demand from related leveraged products could stack on top, expanding index volatility.
Indeed, a tilt toward large-cap semiconductor names is strengthening quickly in the domestic ETF market. The net worth of domestic equity ETFs has surpassed 260 trillion won, up 78% from the end of last year, and ETFs now account for more than 60% of transaction value on the KOSPI.
Ha Jaeseok, an analyst at NH Investment & Securities, said, "Recently, the market for single-stock leveraged ETFs on Samsung Electronics and SK hynix and for concentrated large-cap semiconductor ETFs has been growing rapidly, driven by individual investors," adding, "As ETF flow concentration intensifies, the likelihood grows that market volatility will expand and large caps will continue to show relative strength."
In fact, brokerages are focusing on the possibility that rebalancing by single-stock leveraged ETFs amplified volatility during the latest plunge. Noh Donggil, an analyst at Shinhan Investment & Securities, said, "When the underlying asset price falls, 2x leveraged ETFs must reduce their cash and futures weights to meet the target leverage ratio," adding, "While it is not exactly the same structure as short gamma in the options market, the impact on the market is similar."
He added, "A self-reinforcing pattern can emerge in which price declines trigger additional selling, and that selling drags prices down further," and said, "The recent plunge appears to have been driven more by flows than by corporations' earnings."