South Korea Watchdog Warns on Single-Stock Leveraged ETFs as Turnover Tops 120%

Average daily turnover exceeds 120%

Four times higher than standard leveraged and inverse products

Some products posted drawdowns of as much as 38%

South Korea’s Financial Supervisory Service issued a public warning to investors in single-stock leveraged exchange-traded funds.

The agency said on June 18 it had issued a consumer alert at the “caution” level after prices of single-stock leveraged and inverse products showed sharp swings over short periods. The watchdog can issue public consumer alerts and strengthen oversight of products when investment risks rise.

From June 2 to June 8, the maximum loss from the peak for a single-stock leveraged product tied to SK Hynix reached 38%, the FSS said. That was roughly double SK Hynix’s maximum decline of 19.1% over the same period.

The regulator also flagged excessive short-term trading. From May 27 to June 12, the average daily turnover ratio for single-stock leveraged products reached 122.5%. That was more than four times the 30.2% recorded by domestic equity leveraged and inverse ETFs. A turnover ratio above 100% means a product changed hands more than once a day on average.

The FSS also warned that the disparity rate, or the gap between a product’s market price and its net asset value, could widen. The message appeared to refer to a recent case in which the disparity rate for the ACE SK Hynix Single Stock Leveraged ETF widened sharply.

Sim Woo-il, Korea Economic Daily reporter goodwill@hankyung.com