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Bank of Korea warns on leveraged derivatives tied to chip stocks
The central bank cited rapid growth in offshore Korea exposure, including BlackRock’s Korea ETF, which saw a $2.8bn weekly inflow in July and a surge in Hong Kong-listed leveraged products.
The Bank of Korea has urged closer scrutiny of overseas derivatives tied to South Korean semiconductor stocks, warning that rapid expansion of leveraged products could intensify swings in the country’s equity market, according to a Bloomberg report cited by Hedgeweek. In its latest Monetary Policy Report to parliament, the central bank pointed to unusually sharp Kospi moves between January and July, linking them to the market’s heavy concentration in chip companies, foreign investor portfolio adjustments, and changes in domestic leverage.
The BOK also highlighted offshore hedge funds as a key driver of volatility. It said overseas hedge funds accumulated sizeable leveraged positions in Korean chipmakers before unwinding them during the steep sell-off in July, and it pointed to Situational Awareness, a US-based AI-focused hedge fund, which the report said used leverage of up to four times in establishing and then closing positions in global memory-chip firms.
The central bank warned that growing investor demand for offshore products that provide exposure to Korean chipmakers could create new channels for overseas capital to influence domestic prices. It cited accelerated inflows into BlackRock’s US-listed Korea ETF, which the report said has roughly a quarter of its portfolio in SK Hynix and recorded a $2.8bn weekly inflow in July.
The BOK further noted that leveraged exchange traded funds listed in Hong Kong tracking Samsung Electronics and SK Hynix expanded rapidly, with their combined market value rising more than twenty-fold in the first half of the year. It also flagged hedging activity involving total return swaps between global banks and ETF managers, saying that trading Korean equities, futures and options could amplify feedback effects and underlying price movements.
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