Bao cited leveraged ETF distortions and limited hedging tools, while South Korea’s regulator later said he regretted approving 2x single-stock ETFs after retail-driven losses in Samsung Electronics and SK Hynix products.
Leto Bao said he had fully sold SK Hynix by late June and exited Japanese stocks, arguing that South Korea’s market structure was being distorted by a mismatch between leveraged ETFs and the underlying shares they track, compounded by limited options hedging tools. He said he now holds only U.S. equities and has bought puts for protection. His concerns came as South Korea’s Financial Supervisory Service Governor Lee Chan-jin said on June 23 that he regretted approving 2x leveraged single-stock ETFs tied to Samsung Electronics and SK Hynix after assets surged from about $3 billion to around $9.1 billion within weeks, with retail investors holding roughly 92% of the products. In mid-June, some SK Hynix-linked leveraged ETFs fell 19.7% to 20.9% in a day, circuit breakers were triggered on the KOSPI, and domestic leveraged ETFs lost more than 2.6 trillion won, or about $1.7 billion, on paper over 12 days. Bao said volatility in South Korean stocks may persist until rules on leveraged ETFs are tightened.