South Korean leveraged ETF shrinks by half in a month, and the side effects of leverage are beginning to emerge The total size of leveraged ETFs in South Korea has shrunk by nearly half from its peak in the past month, leaving only about $26.5 billion at present. The total exposure after leverage amplification has also decreased from 3.3% to 2.1% of the free circulating market value of the South Korean stock market. The most aggressive group of funds that drove the rise of the South Korean stock market in the past few months has begun to rapidly deleverage. Leveraged ETFs adjust their positions daily to maintain a fixed multiple. When the fund's net asset value increases, it is necessary to continue buying stocks to expand exposure. The larger the scale, the stronger the mechanical buying before the closing. After the decline, the shrinkage of net asset value, investor redemptions, and daily rebalancing will jointly drive the fund to reduce its positions, and the leverage that previously amplified the rise will begin to amplify the decline. At its peak, the daily rebalancing trading of leveraged ETFs on Samsung was once equivalent to 40% of its average daily trading volume over the past month, but now it has dropped to 15%, and Hynix has also dropped from 26% to 14%. Samsung and Hynix together account for more than half of KOSPI's total market value. After the shrinking size of leveraged ETFs, the South Korean stock market has reduced a batch of incremental buying orders that have the greatest impact on heavyweight stocks. Speaking of which, after Samsung Electronics and SK Hynix rose earlier, leveraged ETFs will continue to chase after them. The higher the stock price, the larger the fund size, and the stronger the passive buying in the future. Now this mechanism has been reversed, with a decrease in stock price leading to a reduction in net asset value, and a decrease in size requiring the fund to reduce its exposure, ultimately forming a cycle of decline, reduction, and continued decline. At present, the size of leveraged ETFs in South Korea is still close to three times that of the beginning of the year, and the proportion of nominal exposure to free market value is still more than twice that of the beginning of the year. This round of deleveraging has begun, but it is not yet over. As long as the South Korean stock market continues to decline, the redemption and daily rebalancing of leveraged ETFs will still bring passive selling, further amplifying the volatility of Samsung Electronics, SK Hynix, and KOSPI. Simply put, the leverage that previously amplified the rise of Samsung and Hynix is now accelerating the decline of the South Korean stock market. Only when the size of leveraged ETFs continues to decline, will this round of deleveraging truly come to an end. @Gate Crypto、 US stocks, Hong Kong stocks, South Korean stocks, gold CFD、 Predicting one-stop trading in the market