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Korea’s financial regulators mull allowing single-stock leveraged ETFs to ease won pressure

Published: 21 Jan. 2026, 17:16 Updated: 21 Jan. 2026, 18:13

A screen in Woori Bank's trading room in central Seoul shows the Kospi closing at 4,909.93 points on Jan. 21. [NEWS1]

Korea’s financial regulators are reviewing whether to allow leveraged exchange-traded funds (ETFs) tied to individual stocks such as Samsung Electronics and SK hynix, as authorities seek to stem capital outflows and ease pressure on the won.

The review focuses on single-stock leveraged ETFs and does not include raising leverage on index-based products to three times (3x), despite market speculation that broader easing could be discussed.

The move follows a recent meeting in which Kim Yong-beom, presidential chief of staff for policy, called in the chief executives of major securities firms to discuss whether to permit leveraged ETFs linked to individual stocks and whether to loosen leverage limits on index-based products.

A senior government official, who spoke on the condition of anonymity, said the review gained momentum after leveraged ETFs tracking Samsung Electronics and SK hynix — Korea's two largest by market cap — were listed in Hong Kong last year.

“A substantial amount of domestic capital moved overseas after 2x leveraged ETFs linked to Samsung Electronics and SK hynix were listed in Hong Kong,” the official said. “Even if we block these products domestically, investors can still access them overseas, so we are examining whether Korea’s regulatory gap has become excessive.”

“3x leverage is not under consideration,” the official added.

Leveraged ETFs are designed to magnify the daily returns of an underlying asset by a fixed multiple. For example, if the underlying asset gains 10 percent, a 3x leveraged product rises 30 percent. Korea currently allows index-based leveraged ETFs up to 2x. Regulations also cap the weight of a single stock at 30 percent, effectively barring single-stock leveraged ETFs.

If the rules are eased, it would mark the first time leveraged ETFs tied to individual stocks are launched in the domestic market.

Korean authorities’ concerns reflect rising retail capital outflows against the backdrop of a weak won. Korean investors held $171.9 billion worth of U.S. stocks as of Friday, up $8.3 billion since the start of the year, according to the Korea Securities Depository. That figure has nearly quadrupled from $44.2 billion at the end of 2022.

Korean retail investors have also poured money into leveraged ETFs unavailable in Korea, such as single-stock products and funds that track indexes at 3x leverage. Korean holdings of the ProShares UltraPro QQQ, which tracks the Nasdaq-100 at 3x leverage, stood at $3.42 billion. Holdings of the Direxion Daily TSLA Bull 2X, which tracks Tesla shares at 2x leverage, reached $2.59 billion.

Critics warn that leveraged ETFs carry a negative compounding effect. While gains can multiply during sustained rallies, losses can expand rapidly during sharp declines or periods of high volatility.

For example, if an underlying asset falls 20 percent from 100 to 80, a 3x leveraged ETF drops 60 percent to 40. Even if the asset then rebounds 25 percent to return to 100, the leveraged product rises 75 percent to just 70. The underlying asset breaks even over the period, but the leveraged ETF records a 30 percent loss.

A trader watches his monitors as he works on the floor of the New York Stock Exchange on Jan. 20, 2026. [AP/YONHAP]

An official in the investment industry said such products resemble speculation rather than investment.

“2x or 3x leveraged ETFs are effectively a probability game,” the official said. “Given the high proportion of retail investors in the Korean market, losses during sharp downturns tend to fall directly on individuals.”

Some economists also question whether easing leverage rules in the name of exchange-rate stability is appropriate.

"Measures such as inspections of overseas investment practices or reshoring investment accounts designed to bring funds back to the domestic market amount to short-term fixes," said Kim Sang-bong, a professor of economics at Hansung University.

“In the medium to long term, the [dollar-won rate in the] 1,480-won level could become the new normal,” he said. “[Authorities should] limit intervention to periods of excessive daily volatility.”

A screen at a currency exchange in Myeong-dong, central Seoul, shows exchange rates on Jan. 21, 2026. [NEWS1]

Seok Byoung-hoon, an economics professor at Ewha Womans University, warned that lowering barriers for leveraged ETFs could fuel short-term trading and increase volatility.

“If regulators lower the threshold for leveraged ETFs, domestic investors are more likely to use them for short-term trades,” he said.

“That could increase volatility and ultimately reinforce the Korea discount," he said, referring to the persistent undervaluation of Korean companies compared to global peers.

Seok added that policymakers should instead focus on improving market conditions, including expanding tax incentives for long-term investors.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY YEOM JI-HYEON [[email protected]]