The global market for leveraged and inverse ETFs has expanded rapidly recently. Data tracked by Goldman Sachs trader Chris Lucas shows that as of May 27, global assets under management for these products exceeded $60 billion, compared to less than $30 billion in early April, roughly doubling in a month and a half.
Regionally, the United States remains the largest market, with a size of approximately $46 billion; Hong Kong, China, has about $13 billion; and South Korea has about $3.3 billion. These three regions constitute the main landscape of this market.
Funds are flowing into memory chips
The core focus of this expansion is not traditional large-cap tech stocks, but rather memory chip companies within the AI industry chain. Currently, the world's largest single-stock leveraged ETF is one offering 2x long exposure to SK Hynix. By early May, this product's size had exceeded $5.3 billion, surpassing Tesla-related products and rising to the top spot globally for single-stock leveraged and inverse ETFs.
New products in the South Korean market further fueled investor interest. On May 27, South Korea, for the first time, allowed domestically listed ETFs with double leverage and inverse ETFs, with 16 products related to Samsung Electronics and SK Hynix listing simultaneously. In just two days, SK Hynix-related products attracted approximately $1.2 billion in inflows, while Samsung Electronics-related products attracted approximately $816 million.
South Korean regulators have repeatedly warned of risks.
South Korean regulators have issued repeated risk warnings. Because the daily price fluctuation limit on the South Korean stock market is 30%, products with double leverage could theoretically experience daily volatility of up to 60%. Regulators point out that these products lack the diversification features of traditional ETFs, with risk highly concentrated in a single stock.
More attention is being paid to the product's rebalancing mechanism. Leveraged ETFs need to adjust their positions daily to maintain a fixed leverage ratio. When the underlying stock price rises or falls rapidly, the fund often needs to passively buy or sell stocks, which may further amplify market volatility.
Institutions are wary of the pressure of a chain reaction of selling.
Barclays' calculations show that during a SK Hynix stock price decline in mid-May, leveraged portfolio rebalancing transactions accounted for up to 17% of the day's trading volume. UBS found that during another rapid decline, related portfolio rebalancing flows even accounted for 60% of the trading volume in the last hour.
Goldman Sachs did not offer a clear prediction of future price movements, but has begun to warn of potential risks. Lucas believes that if related stocks experience sharp fluctuations, leveraged ETFs may trigger concentrated selling, creating a chain reaction of selling pressure and further increasing volatility.
Currently, AI memory chips remain one of the most crowded trading sectors globally. With the addition of leveraged products from South Korea, this market will attract even more attention, especially regarding whether the speed of capital inflows and the volatility of chip stocks will reinforce each other.
