The reference value of the South Korean semiconductor market for US stock AI and semiconductors — rebalancing of leveraged ETFs

As early as June, I discussed the newly launched leveraged ETFs from Samsung and SK Hynix, which may have collectively sold about 6 billion dollars worth of related stocks to maintain leverage ratios.

The reason is that these leveraged ETFs need to maintain their daily target leverage multiples. When the underlying stocks drop, the fund's net assets also decrease, prompting the fund to reduce its stock holdings or other market exposures. The larger the drop, the greater the possible adjustment needed. If these trades concentrate before the market close and there is insufficient buying power, it may further amplify the day's decline.

Currently, there are also leveraged ETFs in the US stock market that track major indices, the semiconductor sector, and individual tech stocks. When the market rises, these products may need to increase exposure to maintain leverage, while in a market decline, they may need to reduce exposure.

For example, a 2x long ETF, assuming its net assets are 100 dollars, corresponds to 200 dollars in market exposure. If the underlying falls by 10%, the exposure drops to 180 dollars, and the fund's net assets fall to 80 dollars. To return to 2x leverage, the fund needs to adjust the exposure to 160 dollars, which means it must reduce the exposure by another 20 dollars.

Thus, when the market experiences a significant decline, besides active selling by investors, leveraged ETFs may also increase selling pressure due to daily position adjustments. If the selling pressure becomes concentrated and market buying strength is insufficient, it may exacerbate the decline or increase volatility.

In simple terms, the situation that led to accelerated declines in Korea due to leverage is likely to occur in the US stock market as well. Retail investors in the US stock market are also pursuing high returns and widely adopting leveraged ETFs, which could accelerate declines in a down market.

The South Korean semiconductor market is the best example.

An @Gate, trading more markets

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