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Photo courtesy of Yonhap News |
[Alpha Biz= Kim Jisun] The South Korean government is moving to pave the way for single-stock leveraged exchange-traded funds (ETFs), aiming to lure domestic investors back from overseas markets. The initiative has fueled expectations that a leveraged ETF tracking Samsung Electronics at twice its daily performance could eventually debut on the local market.
According to financial authorities on January 18, the Financial Services Commission (FSC) has recently begun reviewing regulatory reforms to introduce high-risk, high-leverage ETFs in Korea. Measures under consideration include allowing leveraged ETFs linked to individual stocks and raising the leverage cap on index-based ETFs beyond the current limit of two times.
The move follows a meeting held on January 13, when Kim Yong-beom, senior presidential policy secretary, convened chief executives of major securities firms and asset managers to discuss ways to enhance the attractiveness of the domestic stock market. A senior financial regulator said current leverage restrictions on ETFs are overly stringent given the aggressive investment appetite of Korean retail investors.
Under existing regulations, ETFs in Korea are prohibited from tracking individual stocks with amplified returns or from offering leverage exceeding two times that of a benchmark index. The Enforcement Decree of the Capital Markets Act requires underlying ETF indices to consist of at least 10 constituents, with no single stock accounting for more than 30%.
In contrast, high-leverage ETF products are already commonplace in overseas markets. 대표 examples include the ProShares UltraPro QQQ ETF, which tracks three times the daily performance of the Nasdaq-100 Index, and the Direxion Daily TSLA Bull 2X Shares ETF, which offers double exposure to Tesla’s daily returns.
Last year, an ETF tracking Samsung Electronics with two times leverage was listed not on the Korea Exchange but on the Hong Kong Stock Exchange. The product, named the CSOP Samsung Electronics Daily 2X Leveraged ETF, gained significant attention and ranked among the top four ETFs by net inflows amid Samsung Electronics’ share price rally.
The government believes that allowing high-risk leveraged ETF products domestically could help stem the outflow of Korean retail investors to overseas markets. Despite strong rallies in the KOSPI over the past year and into this year, individual investors have continued to channel funds into U.S. equities, driven in part by a strong preference for high-risk, high-return investment vehicles.
Meanwhile, financial authorities plan to strengthen supervision alongside regulatory reforms to curb excessive overseas investment sales practices. The Financial Supervisory Service, which inspected securities firms’ overseas operations late last year, has reportedly conducted additional on-site inspections at Samsung Securities and Mirae Asset Securities, following earlier probes into Toss Securities and Kiwoom Securities.
Alphabiz Reporter Kim Jisun(stockmk2020@alphabiz.co.kr)
