Global Market: How leveraged ETFs are amplifying the AI chip trading frenzy

Exchange-traded funds (ETFs) have long been a popular investment vehicle, offering investors a low-cost way to gain exposure to baskets of stocks while trading them like individual shares. However, a newer class of products—leveraged ETFs—is rapidly gaining traction, particularly among investors seeking amplified exposure to artificial intelligence-linked semiconductor stocks.

According to Reuters, the surge in leveraged ETFs tied to chipmakers such as Samsung Electronics and SK Hynix is reshaping trading dynamics in Asia, driving sharp market swings and prompting regulators to intervene.

How Leveraged ETFs Amplify Returns

Leveraged ETFs are designed to deliver multiples of the daily returns of an underlying asset or index, typically two, three or even five times. To achieve this, fund managers use financial derivatives such as futures and swaps, effectively borrowing exposure to magnify gains and losses.


Unlike conventional ETFs, leveraged funds require continuous rebalancing. As the underlying stock rises, fund managers must buy additional shares and derivatives to maintain the targeted leverage. Conversely, they sell holdings when prices decline.

This daily rebalancing process can create a feedback loop that intensifies price movements, increasing volatility in both individual stocks and the broader market.

AI Chip Stocks Become the Primary Target

The popularity of leveraged ETFs has surged alongside investor enthusiasm for artificial intelligence, particularly companies supplying AI hardware.

Single-stock leveraged ETFs, first introduced in the United States in 2022, have expanded rapidly across Asia. South Korea launched similar products in May, while Hong Kong-listed two-times leveraged ETFs tracking Samsung Electronics and SK Hynix have attracted significant investor interest since their debut in 2025.

According to Reuters, assets under management in the leveraged ETF linked to SK Hynix have increased roughly twentyfold since the beginning of this year.

Retail Participation Despite High Risks

Although asset managers market leveraged ETFs primarily to professional traders and sophisticated investors, retail participation has grown rapidly.

These products typically carry warnings that they are unsuitable for long-term investing because the costs associated with maintaining leveraged positions can significantly erode returns over time, causing performance to diverge from the underlying stock.

Despite these risks, many retail investors continue to embrace leveraged ETFs in pursuit of outsized gains from AI-related stocks.

South Korea Emerges as the Epicenter

South Korea has become the focal point of the leveraged ETF boom due to the enormous size of Samsung Electronics and SK Hynix. Both companies have trillion-dollar market capitalisations and together account for more than half of the benchmark KOSPI index.

The Hong Kong-listed two-times leveraged ETF tracking SK Hynix, managed by CSOP, has grown into the world's largest single-stock leveraged ETF with assets totalling HK$51.8 billion (approximately $6.6 billion).

The heavy inflows into these products have supported gains in SK Hynix shares, but the mandatory buying and selling required during daily portfolio rebalancing has also contributed to sharp price swings, particularly at market open and close.

Reuters calculations showed that Samsung Electronics and SK Hynix together accounted for more than 80% of KOSPI trading volume on certain trading days this year.

The impact has also been reflected in market volatility. The KOSPI Volatility Index climbed to 89 on Thursday after reaching a record high of 97.99 on June 29, compared with 28.85 at the end of 2025.

Adding to market fluctuations, SK Hynix's recent Nasdaq listing has created another avenue for leveraged ETF activity through newly launched U.S.-listed products.

Regulators Move to Curb Risks

The rapid expansion of leveraged ETFs has drawn the attention of South Korean regulators.

The Financial Services Commission announced new measures on Thursday aimed at limiting risks associated with single-stock leveraged ETFs. These include banning promotional campaigns and discouraging the launch of additional products.

Earlier, the Financial Supervisory Service acknowledged that approvals for the products had been rushed as authorities sought to attract retail investors back from U.S. markets and help support the Korean won, according to Reuters.

Growing Debate Over Market Stability

The rapid growth of leveraged ETFs highlights the increasing influence of passive and derivative-based investment products on market behavior.

While these funds provide investors with an efficient way to amplify short-term trading opportunities, their structure can also magnify volatility during periods of heavy buying and selling. As AI-related semiconductor stocks continue to attract global investor interest, regulators are likely to keep a close watch on whether leveraged ETF flows pose broader risks to financial market stability.