As the world's best-performing yet most volatile market this year, South Korea's stock market is set to launch its first individual stock leveraged exchange-traded funds (ETFs) this week. These investment tools have the potential to amplify both gains and losses.

These products are linked to chipmakers Samsung Electronics and SK Hynix, aiming to achieve twice the daily price movement of these two stocks.

Analysts anticipate that these ETFs will be highly sought after by South Korea's more than 14 million retail investors. However, with daily swings of up to 5% in the Kospi index becoming commonplace, retail enthusiasm could further intensify market volatility.

"ETFs will exacerbate the existing issue of concentration risk," said Jung In Yun, CEO of Fibonacci Asset Management Global in Singapore. "This poses a structural challenge for long-term investors, as index volatility is likely to remain elevated, making the Korean market more difficult to navigate."

Leveraged ETF products utilize derivatives and swap contracts to place bets on underlying assets such as indices, stocks, bonds, or commodities, offering investors opportunities for amplified returns. Simultaneously, because issuers typically need to rapidly buy and sell assets to maintain the fund's alignment with its promised leverage ratio, leveraged products can also intensify price volatility in actively traded underlying assets.

In recent years, South Korean investors have shown strong interest in such products to capitalize on opportunities arising from the Kospi's rally, driven by the global artificial intelligence boom. With chip stocks surging and the government pushing for enhanced shareholder returns, the benchmark index has more than doubled since the end of 2024.