SK Hynix ADR listed on Nasdaq on the 10th (local time), prompting US asset managers to prepare leveraged ETF launches. Bloomberg reported that ProShares, Leveraged Shares, and Rex Shares are developing products tracking twice the daily returns of SK Hynix ADR, with at least six products launching next week. The launches follow strong demand shown by CSOP's Hong Kong SK Hynix leveraged ETF, which managed over $16 billion before recent declines. In Korea, SK Hynix and Samsung Electronics plus their leveraged products account for over 70% of trading volume in a $4.3 trillion stock market, raising volatility concerns.
ProShares and Leveraged Shares Prepare 2x Daily Return Products
Bloomberg reported that ProShares, Leveraged Shares, and Rex Shares are preparing products that track twice the daily returns of SK Hynix ADR. At least six products will launch next week, with some asset managers introducing inverse ETFs for investors betting on price declines.
Korean Market Shows Concentrated Trading in Leveraged Products
CSOP's Hong Kong SK Hynix single-stock leveraged ETF managed over $16 billion in assets before recent price declines, becoming the world's largest single-stock leveraged product. In Korea, SK Hynix and Samsung Electronics plus their leveraged products account for over 70% of trading volume in a stock market with $4.3 trillion in market capitalization.
John Cho, Korea equity portfolio manager at JP Morgan Asset Management, stated that some retail investor trading appears increasingly driven by momentum investing that chases rising price trends. He noted that single-stock ETF growth is increasing trading volume and volatility in mega-cap stocks. Cho pointed out that the emergence of leveraged ETFs may signal retail investor behavior typical of late-stage bull market cycles and is not viewed as a healthy phenomenon.
Bloomberg Intelligence Warns of Tracking Error Risks
Bloomberg Intelligence reported that leveraged products have grown so large that achieving the goal of providing twice the daily returns has become difficult, resulting in tracking errors between underlying assets and product returns. Rebecca Shin, ETF analyst at Bloomberg Intelligence, stated that US investors may experience tracking difficulties similar to those seen in Hong Kong's SK Hynix leveraged products. She explained that when investment demand significantly exceeds available stock supply in the market, ETF issuers may struggle to procure shares and maintain effective hedges, potentially causing tracking errors relative to the underlying stock.
Asset Managers See Business Opportunity in Investor Demand
Asset managers view the strong investor demand for leveraged products as a business opportunity. SK Hynix's US listing valued at $26.5 billion represents the largest-ever listing for a foreign company, opening a new potential investor base. Francis Oh, head of Asia business development at Rex, stated that the products can absorb pent-up demand from global investors seeking direct exposure to SK Hynix.
FAQ
What leveraged ETF products did Bloomberg report for SK Hynix ADR?
Bloomberg reported that ProShares, Leveraged Shares, and Rex Shares are preparing products that track twice the daily returns of SK Hynix ADR, with at least six products launching next week. Some asset managers are also introducing inverse ETFs for investors betting on price declines.
What tracking error risks did Bloomberg Intelligence identify for SK Hynix leveraged ETFs?
Rebecca Shin, ETF analyst at Bloomberg Intelligence, stated that when investment demand significantly exceeds available stock supply in the market, ETF issuers may struggle to procure shares and maintain effective hedges. This can cause tracking errors between the underlying stock and product returns, similar to difficulties seen in Hong Kong's SK Hynix leveraged products.
