Samsung, SK Hynix Leveraged Product Investors Lost $1.7 Billion in Three Months

Retail investors who bought single-stock leveraged exchange-traded products tied to Samsung Electronics Co. and SK Hynix Inc. are estimated to have lost about $1.7 billion over roughly three months.

Bloomberg’s analysis of data that lawmaker Choi Eun-seok of the ruling People Power Party obtained from the Financial Supervisory Service showed that clients at 10 South Korean brokerages posted combined losses of 2.3 trillion won, or about $1.7 billion, from May 27 through Aug. 14 on single-stock exchange-traded funds and exchange-traded notes linked to Samsung Electronics and SK Hynix.

The data included investment records compiled by major local brokerages including Mirae Asset Securities Co., Kiwoom Securities Co., Samsung Securities Co. and NH Investment & Securities Co. It marks the first time that losses from investments in South Korea’s single-stock leveraged products have been disclosed in specific terms.

The products were introduced in South Korea in May. They are structured to deliver leveraged exposure to moves in Samsung Electronics and SK Hynix shares. That can magnify gains in a rising market, but losses can also mount quickly when the stocks move in the opposite direction.

Volatility increased as leveraged money poured into a market already highly sensitive to the artificial intelligence industry and semiconductor shares. Samsung Electronics and SK Hynix are key chipmakers in the global AI supply chain, so changes in industry conditions and investor sentiment were closely reflected in the performance of the leveraged products.

Financial authorities tightened regulations starting in July after retail investment in leveraged products overheated. They temporarily halted new listings of single-stock leveraged products, raised the minimum deposit requirement for investors and strengthened advance education requirements.

Authorities later introduced additional investor-protection measures, including requiring paper trading for investors in single-stock leveraged ETFs. As the rules tightened, trading in single-stock leveraged products also fell sharply.

Authorities had originally allowed the products to launch domestically in May in part to curb the flow of South Korean investors into similar leveraged products listed overseas. But after the products were introduced, the risk of retail losses from share-price swings came into sharper focus, prompting regulators to strengthen oversight within just a few months.