South Korean Chip ETFs Collapse After New Trading Rules

Trading value for leveraged exchange-traded funds targeting Samsung Electronics Co. and SK Hynix Inc. has fallen to 4% of its June peak following regulatory tightening by the Government of South Korea. To reduce extreme market volatility, authorities implemented a mandatory five-day simulated trading course on August 19. The requirement forces investors to use a Windows-only PC program for at least one hour daily and maintain a minimum cash deposit of 30 million won.

Retail investors have largely abandoned these single-stock ETFs due to the cumbersome nature of the new rules. This regulatory pressure, combined with a broader retreat from the AI trade, led to combined outflows of approximately $1 billion in August. Assets under management for these funds shrank from a late-June peak of $11.4 billion to $5 billion as of August 27.

While the contraction represents a significant loss in fund value, the move has helped stabilize the Kospi. The index's volatility gauge recently hit a four-month low, suggesting the regulatory curbs achieved their goal of curbing speculative swings in the chip sector.