The first batch of leveraged ETFs linked to Samsung Electronics and SK Hynix in South Korea attracted over $2.8 billion in assets on their debut day. However, Goldman Sachs' sales department promptly warned that these products could act as a volatility "accelerator" for the already fragile Korean stock market, with their impact becoming evident during a sharp market decline the following day.

In a report, Goldman Sachs' sales department noted that the 16 leveraged ETFs tied to Samsung Electronics or SK Hynix, which began trading on Wednesday, amassed a combined asset size of 4.3 trillion won (approximately $2.8 billion). These single-stock leveraged ETFs, previously banned in South Korea, drew a large number of retail investors seeking to amplify their exposure to these two core chip manufacturers at the heart of the global AI boom.

The warning was validated the very next day. On Thursday, the Kospi index saw its intraday decline widen to 4.7%, with Samsung Electronics dropping 6.4% and SK Hynix falling 4.1%. A leveraged product tracking Samsung Electronics approached a 10% single-day decline.

The Kospi has gained 95% year-to-date, ranking among the world's top-performing stock markets, driven largely by these two chip giants. These two stocks currently account for about 50% of the Kospi's weighting. The large-scale entry of leveraged ETFs has heightened concerns over market concentration risks and amplified volatility.

**First-Day Inflows Exceed $2.8 Billion, Retail Enthusiasm Overrides Regulatory Concerns**

These products are South Korea's first approved single-stock leveraged ETFs, a category previously prohibited locally. According to earlier Bloomberg reports, pre-launch market expectations projected net inflows could reach 5.3 trillion won (approximately $3.5 billion), supported by strong demand from over 14 million South Korean retail investors. The first-day combined asset size of 4.3 trillion won confirmed the high market enthusiasm for these products.

However, regulators have maintained a cautious stance. The Financial Supervisory Service of South Korea had previously issued clear warnings that the new products could exacerbate market volatility and potentially harm retail investors. Analysts also pointed out that the rebalancing mechanism has, on a single day, accounted for up to 60% of abnormal trading volume, underscoring the significant impact that large-scale leveraged ETF operations can have on intraday liquidity.

**Rebalancing Mechanism as a "Volatility Accelerator," Goldman Sachs Issues Warning**

Goldman Sachs' sales department elaborated on its concerns in the report. Because leveraged ETFs must rebalance daily to maintain their leverage ratio, this mechanism forces them to buy during market rallies and sell during declines, systematically amplifying price movements in trending markets. The report characterized this type of trading as a volatility "accelerator."

The report further warned that each of the 16 products promises to deliver twice the daily return of the underlying stock. This means that, regardless of market direction, the funds' mechanical operations will impose additional pressure on market liquidity and could exacerbate sell-off risks during extreme market conditions.

Within 24 hours of the Goldman Sachs report, related risks materialized. On Thursday, the Kospi index plunged as much as 4.7% intraday, with Samsung Electronics falling 6.4% and SK Hynix dropping 4.1%. A leveraged product tracking Samsung Electronics neared a 10% single-day decline. The amplifying effect of the rebalancing mechanism in a declining market was already becoming apparent.

The Goldman Sachs report also highlighted another structural concern: the market's dependence on Samsung Electronics and SK Hynix is set to deepen further. These two stocks already constitute roughly 50% of the Kospi's weighting. Introducing billions of dollars worth of leveraged ETFs on top of this will significantly shorten the transmission path for potential shocks.

"Any sector-specific shock to the semiconductor industry will now be doubly amplified by the mechanical selling of these multi-billion-dollar funds, potentially triggering broader index instability."