A view of the Yeouido financial district, often referred to as Korea’s “Wall Street.” (Yonhap)
SEOUL, Feb. 2 (Korea Bizwire) — South Korea’s financial authorities are preparing to allow domestically listed leveraged exchange-traded funds tied to individual stocks, a move aimed at drawing back retail investors who have increasingly turned to overseas markets for higher-risk products.
The Financial Services Commission announced last week that it would revise enforcement decrees under the Capital Markets Act to permit single-stock leveraged ETFs based on leading Korean equities — instruments that until now had been available only through foreign exchanges.
The change is intended to meet growing demand from so-called “Seohak ants,” South Korean retail investors known for aggressive overseas investing, and to recapture capital flowing out of the domestic market.
Under existing rules, ETFs were required to track indexes composed of at least 10 stocks, with no single component exceeding 30 percent, effectively blocking the launch of single-stock products.
Supporters say the reform brings South Korea closer to global standards. Similar ETFs are already traded in major overseas markets, and domestic investors have shown strong appetite for them abroad.
According to the Korea Securities Depository, one of the most actively traded Hong Kong-listed products among Korean investors last month was a leveraged ETF tracking Samsung Electronics, with holdings exceeding $43 million. Leveraged ETFs tied to SK hynix have also attracted sizable inflows.
Asset managers expect locally listed products to appeal to investors, particularly because they would offer tax advantages over foreign ETFs. Several firms said they are preparing for potential launches once the Korea Exchange issues detailed guidelines.
Yeouido financial district in Seoul (Image courtesy of Yonhap)
KB Asset Management said it plans to move quickly once regulatory procedures are finalized, with industry officials estimating that products could reach the market within a few months of the rule changes.
At the same time, concerns are mounting over the structural risks of such instruments. Unlike diversified ETFs, single-stock leveraged products amplify price movements of a single company, making them especially volatile during market downturns.
Some asset managers warn that the products could intensify short-term swings in heavily traded blue-chip stocks and alter trading patterns, particularly if market sentiment turns negative.
Analysts note that while leveraged investing preferences are already evident among Korean retail investors, the introduction of domestic products could further concentrate trading activity in a small number of leading stocks.
“The demand clearly exists,” said Kim In-sik, a researcher at IBK Investment & Securities. “But given the higher volatility and lower liquidity of single-stock ETFs, leveraged versions may amplify market fluctuations and warrant careful oversight.”
With investor interest concentrated in a handful of major companies, industry officials expect fierce competition among asset managers — and potentially multiple ETFs tracking the same stocks — once the new framework takes effect.
As South Korea seeks to modernize its capital markets while strengthening investor protection, the coming months are likely to test how far regulators are willing to go in balancing innovation with risk.
Ashley Song (ashley@koreabizwire.com)
