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▲ .SK Hynix, Samsung Electronics/AI generated image
The artificial intelligence (AI) investment frenzy concentrated in SK Hynix and Samsung Electronics propelled the leveraged exchange-traded fund (ETF) market to $55 billion, but as the overheating subsided, related funds sharply decreased to $26 billion.
Sean Taylor, Chief Investment Officer and Portfolio Manager at Matthews, stated in an interview with Bloomberg ETF IQ on August 5 (local time) that the leveraged ETF market has formed primarily around the United States, Hong Kong, and South Korea. In South Korea, related products were officially listed starting around May. The investment scale, which was negligible at the beginning of the year, once swelled to approximately $55 billion but recently decreased to about $26 billion.
Taylor predicted that South Korea's regulations would be implemented to increase the initial capital required from investors and strengthen portfolio diversification and investor education. He said, "While it may help in the short term, it is not a key means of market stability." He explained that South Korean regulations alone cannot prevent trading of leveraged ETFs listed in the U.S. and Hong Kong.
Behind the concentration of leveraged investments are SK Hynix and Samsung Electronics, which dominate the AI memory demand. Taylor stated that he reduced South Korea's weighting in global emerging market and Asia investment strategies in early July, after the two stocks had risen sharply. In South Korea-specific investment strategies, he maintained the two stocks while broadening the investment scope to indirectly benefited stocks, such as holding companies and related enterprises. He cited domestic insurance companies, whose profits are expected to double this year, bolstered by dividends received from major shareholders, as an example.
The South Korean stock market has long been discounted due to its corporate governance structure and industry composition centered on cyclicals. However, the market has begun to evaluate SK Hynix and Samsung Electronics not merely as cyclical stocks but as structural growth stocks. Taylor explained that profit forecasts from 2027 to 2029 are not fully reflected in the stock price, and the price-to-earnings ratio based on expected earnings is still in the single digits. Recent performance and ongoing capital expenditures have supported the robust fundamental strength of both companies and the semiconductor supply chain.
However, market concentration is extreme, with the two stocks accounting for half of the South Korean benchmark index. Excluding semiconductor stocks, the price-to-earnings ratio of the South Korean stock market is about 9x, lower than global, Asian, and other emerging markets. The forecast for corporate earnings growth this year, which was 6-7% at the beginning of the year, has been revised upwards to over 30%, with a similar trend expected for the following year. While foreign investors have sold $140 billion worth of South Korean stocks since early 2025, Taylor assessed that "even if market leverage and investment positions are overheated, the fundamental strength of the companies is strong."
[Article Key Summary]
-The investment scale of South Korean leveraged ETFs once grew to $55 billion but recently decreased to $26 billion.
-South Korea's investment regulations can reduce short-term overheating but cannot prevent trading of leveraged ETFs in the U.S. and Hong Kong.
-Despite the burden of market concentration, SK Hynix and Samsung Electronics maintained strong fundamental strength based on AI memory growth and upward revisions in profit forecasts.
*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*
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