Samsung Electronics, SK Hynix plunge rattles global markets — leveraged ETFs cited as culprit

A sharp selloff in South Korean stocks — which had surged on the back of the AI boom — rippled into US and European markets, Bloomberg reported Tuesday. The correction, centered on technology and semiconductor shares, dragged the Nasdaq Composite and the Philadelphia Semiconductor Index sharply lower.

Bloomberg described the Korea-triggered plunge as a case study in the structural risks posed by leveraged exchange-traded funds that have spread across global financial markets.

As share prices of SK Hynix and Samsung Electronics — the two stocks that had led the Korean market’s rally — tumbled, concerns grew that leveraged ETFs were amplifying volatility. Wall Street strategists pointed to the Korean market as one of the epicenters of the correction.

Charlie McElligott, Nomura’s cross-asset strategy chief, called Korea “ground zero for the AI bottleneck investment theme,” adding that the market structure created by leveraged ETFs had turned a small shock into a global storm. “It’s like a butterfly flapping its wings on one side of the world and triggering a hurricane on the other,” he said.

The Korea Exchange triggered a circuit breaker for the fourth time this year, compared with once last year and not at all in 2025, underscoring how sharply volatility has escalated.

South Korean financial regulators have also flagged concerns about the rapid proliferation of leveraged products. Single-stock leveraged ETFs listed on the Korean market were valued at around $3 billion when they launched in May; that figure has since surpassed $9 billion.

The leveraged ETF market has grown steeply in recent years. Global assets under management in leveraged ETFs have topped $290 billion, according to Bloomberg data. The US market accounts for the largest share at more than $220 billion, while Asian markets have expanded to around $45 billion.

Alexander Altman of Barclays estimated that the average daily rebalancing volume of US leveraged ETFs over the past 10 trading days has run at about $20 billion — roughly four times the annual average. Nomura similarly calculated that for every 1 percent move in the market, leveraged ETFs generate an additional $9 billion in trading demand.

Experts say leveraged ETFs are not the direct cause of market declines but do amplify volatility. In a rising market they drive additional buying; in a falling market they intensify selling pressure, pushing moves to greater extremes.

Leveraged ETFs trade mechanically to maintain their promised multiplier. When share prices rise they buy more; when prices fall they sell — a structure that reinforces both uptrends and downtrends.

“Leverage inside the equity market is making it overly technical,” Altman said. “Leveraged ETFs are the biggest technical risk in the current market, independent of fundamentals.”

Some analysts, however, push back against placing all the blame for the recent correction on leveraged ETFs.

Rocky Fishman of Asym Research said that while highly volatile stocks like SK Hynix can move faster because of leveraged ETFs, the underlying cause is ultimately the strong enthusiasm of retail investors eager to participate in the AI sector’s exceptional returns.

Market participants remain divided on whether the current pullback represents a short-term release of excess heat or the start of broader volatility. There is, however, growing consensus that with leveraged ETF assets expanding so rapidly, any future surge in technology-stock volatility could deliver a market shock larger than anything seen before.

rainbow@heraldcorp.com