As the market for leveraged ETFs that track individual stocks such as Samsung Electronics and SK hynix has grown rapidly, the so-called "short gamma" risk is amplifying volatility in Korea's stock market. On the 23rd, when the KOSPI plunged nearly 10%, the prevailing analysis was that mechanical rebalancing of these products fueled selling that deepened the drop.
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 was about 16 trillion won. Trading value the same day reached 15.7 trillion won. It means trading nearly matched total ETF assets in a single day.
For SK hynix leveraged ETFs, trading value was 11.4 trillion won versus 10.6 trillion won in net worth, while for Samsung Electronics leveraged ETFs, trading value was 4.3 trillion won versus 5.4 trillion won in net worth. As the two stocks slumped around 12% intraday, the related ETFs' net asset value (NAV) fell by nearly 25%.
Short gamma refers to a structure of buying more when prices rise and selling 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 1 billion won, the ETF must maintain stock or futures positions worth 2 billion won, twice the actual investment. If the underlying asset then rises, it buys more to meet the target multiple; if it falls, it must reduce holdings. As a result, the structure amplifies gains in rising markets and deepens losses in falling markets.
A similar pattern likely appeared during the latest plunge. When prices fall and a leveraged product's net worth shrinks, it must cut exposure to the underlying asset to maintain its target multiple. The repeated loop of price declines → ETF asset decrease → position cuts → additional selling can further magnify volatility.
In particular, the impact is large because Samsung Electronics and SK hynix wield outsized influence in the domestic market. The two stocks account for roughly half of the KOSPI's market capitalization and more than 70% of net profit. Analysts say if semiconductor sentiment wavers, rebalancing demand from related leveraged products could overlap and widen index volatility.
Indeed, a rapid tilt toward large-cap semiconductor names is strengthening in Korea's ETF market. The net worth of domestic equity ETFs has topped 260 trillion won, up 78% from the end of last year, and ETFs now account for more than 60% of trading value on the KOSPI.
Ha Jae-seok, an analyst at NH Investment & Securities, said, "Recently, markets centered on individual investors are seeing rapid growth in single-stock leveraged ETFs on Samsung Electronics and SK hynix and in concentrated large-cap semiconductor ETFs," adding, "As ETF flow concentration intensifies, the likelihood rises of continued relative strength in large caps alongside greater market volatility."
In fact, brokerages are focusing on the possibility that rebalancing in single-stock leveraged ETFs amplified volatility during the latest plunge. Noh Dong-gil, an analyst at Shinhan Investment & Securities, said, "When the underlying price falls, 2x leveraged ETFs must reduce the shares and futures they hold to maintain the target leverage ratio," adding, "While it is not exactly the same structure as short gamma in the options market, the market impact is similar."
He added, "A self-reinforcing structure can emerge in which falling prices trigger more selling, and that selling pushes prices down further," and said, "The recent plunge appears to have been driven more by flows than by corporations' earnings."