Exchange-traded funds have been part of global markets for decades as low-cost, tradable baskets of securities. In recent years a subset known as leveraged ETFs - which aim to multiply the daily return of an underlying index or stock - has become increasingly prominent, and in 2026 these vehicles are a key driver of the market moves tied to artificial intelligence hardware names.
Leveraged ETFs replicate their exposure using derivatives such as futures or swaps and by taking on borrowed exposure to target a multiple of an assets daily return. That multiple is commonly two, three or even five times. The mechanics that deliver such magnified daily returns also magnify losses, making them inherently more volatile than the underlying securities over multiday horizons.
Single-stock leveraged ETFs - a product first introduced to U.S. markets in 2022 - expanded into Asian markets more recently. In South Korea, single-stock leveraged ETFs began trading in May, and separate two-times leveraged instruments tracking Samsung Electronics and SK Hynix launched in Hong Kong in 2025. One such Hong Kong-listed, twice-leveraged ETF tracking SK Hynix has seen assets under management balloon, with the fund managed by CSOP holding HK$51.8 billion, equivalent to $6.6 billion, making it the largest fund of its type globally.
Assets in the fund tracking SK Hynix have surged 20 times since the start of the year, evidence of the scale of capital flowing into these concentrated, leveraged exposures. When investors purchase a unit of a leveraged ETF, the fund must both buy the underlying shares and enter into derivatives positions that create the desired leverage. Those positions are rebalanced daily - and often at the open and close of trade - so that the fund maintains its target multiplier. That rebalancing forces the fund to buy more of the underlying stock when its price rises and to sell when the price falls.
Those routine rebalancing trades can create a feedback loop, reinforcing price moves in either direction and increasing short-term volatility. Market participants and fund issuers frequently describe these products as intended for professional traders and sophisticated investors. Fund documentation commonly states they are unsuitable for buy-and-hold investors, since the compounding effects and maintenance costs inherent in leveraged positions can cause performance to diverge materially from the underlying stock over time.
Nonetheless, retail participation has been substantial. In South Korea the impact is amplified by the size of the companies involved. SK Hynix and Samsung each command trillion-dollar market capitalizations and together make up more than half of the benchmark KOSPI index. The concentration of market capital and the weight of ETF flows have combined to create pronounced single-stock volatility in the semiconductor sector.
"Thats driving elevated levels of volatility on a single-stock level," said Michael Green, chief strategist and portfolio manager for Simplify Asset Management, noting the feedback loop between ETF flows and underlying stock moves. At times this year Samsung and SK Hynix have accounted for more than 80% of KOSPI trading volume, according to Reuters staff calculations.
The KOSPIs volatility index demonstrates the escalation in market turbulence. It stood at 89 on Thursday, after hitting a record high of 97.99 on June 29, and is sharply higher than 28.85 at the end of 2025. Additional market structure changes have added to the uncertainty: SK Hynixs Nasdaq debut this month and a wave of new leveraged ETF listings in the United States have introduced fresh sources of rapid flows and price action.
The scale of these flows and the behaviour they prompt have attracted regulatory attention. South Koreas Financial Services Commission announced a set of new measures targeting single-stock leveraged ETFs, including bans on promotional events and advisories discouraging new launches. Separately, the Financial Supervisory Service acknowledged that approvals for the funds had been "prepared hastily" as part of efforts to bring retail investors back from U.S. markets and to address weakness in the Korean won.
Issuers and regulators face a familiar trade-off: the products can attract trading activity and market share, but they can also reshape liquidity, concentrate trading in a handful of names and elevate intraday and single-stock volatility. Fund managers who market these products underscore that the expense and ongoing maintenance of leveraged positions erode returns over time and can lead to large divergences from the performance of the underlying assets for investors who hold them for extended periods.
For market participants and policy makers, the situation highlights how structured investment products can interact with market structure - in this case helping to amplify moves in some of the largest technology and semiconductor names tied to the AI hardware cycle - and how those interactions can feed back into broader market volatility measures.
Summary
Leveraged ETFs that multiply daily returns using derivatives have surged around AI hardware names, particularly in Asia. The products daily rebalancing amplifies price moves and has driven significant volatility in South Korea, where Samsung and SK Hynix dominate trading. Regulatory steps have been taken in response to the rapid growth and market impact of single-stock leveraged funds.