Korea to List 2x Leveraged ETFs Tied to Samsung Electronics, SK Hynix; Hong Kong Funds May Return

South Korea is set to list 2x leveraged exchange-traded funds next month tied to Samsung Electronics and SK Hynix, raising expectations that some retail money that moved to Hong Kong for similar products could shift back to the domestic market.

According to the Korea Securities Depository, as of April 24 the “CSOP SK Hynix Daily 2X Leveraged ETF (XL2CSOPHYNIX)” ranked seventh and the “CSOP Samsung Electronics Daily 2X Leveraged ETF (XL2CSOPSMSN)” ranked 10th among Hong Kong stocks held by South Korean investors. The custody amounts were $104.78 million and $74.11 million, respectively — nearly 264 billion won in total.

Both ranking and holdings rose from the end of March, when the two products stood at 10th ($54.95 million) and 11th ($43.45 million). With upbeat expectations for the semiconductor cycle, demand from South Korean investors had continued to flow into Hong Kong, where single-stock 2x leveraged ETFs have been available.

The underlying shares also climbed sharply from April 1 to 24: Samsung Electronics rose 31.28% and SK Hynix gained 51.43%. Over the same period, South Korean investors’ Hong Kong trading was concentrated in the two ETFs. For the SK Hynix 2x ETF, investors bought $40.27 million and sold $48.96 million. For the Samsung Electronics 2x ETF, they bought $23.75 million and sold $19.36 million.

With the domestic launch of single-stock leveraged ETFs approaching on May 22, the financial investment industry is increasingly discussing whether demand that headed to Hong Kong could return.

Industry officials point to convenience and taxes. Hong Kong-listed ETFs require converting won into Hong Kong dollars and factoring in foreign-exchange gains or losses, while domestic ETFs can be traded without currency conversion. Tax treatment also differs: capital gains on overseas-listed ETFs are subject to capital gains tax, while trading gains on domestically listed ETFs are effectively not taxed.

Another factor is the so-called domestic market return account (RIA). Investors who bought the Hong Kong-listed Samsung Electronics or SK Hynix 2x ETFs before Dec. 23 last year can sell them by the end of May and reinvest in domestic ETFs to receive a 100% deduction benefit. At the time, South Korean investors’ custody amount in those products was about $49.61 million, or roughly 73.2 billion won.

“Because there were no single-stock leveraged products in Korea, a large share of demand moved to the Hong Kong market,” a financial investment industry official said. “After domestic listing, the lack of currency-conversion burden and the tax advantages could lead to a shift of funds into domestic ETFs, especially among individual investors.”

* This article has been translated by AI.

RYU SO HYUN