Following SK Hynix’s Nasdaq debut, Wall Street has witnessed a flurry of single-stock exchange-traded funds (ETFs) designed to either double the company’s stock price or bet against it. This surge suggests that Wall Street now views SK Hynix as a premier artificial intelligence (AI) stock, comparable to industry giants like Nvidia and Tesla, attracting significant attention from global investors.
SK Hynix’s recent U.S. market entry raised a record-breaking 26.5 billion USD, marking the largest U.S. listing ever by a foreign company. This milestone is expected to catalyze a rapid expansion of SK Hynix-based derivative investment products on Wall Street.
Reuters reported on July 12 that at least ten asset management firms, including industry leaders Direxion and ProShares, have either completed or initiated registration for single-stock ETFs based on SK Hynix’s American Depositary Receipts (ADRs). The majority of these offerings are leveraged ETFs aiming to double SK Hynix’s daily returns or inverse ETFs betting on stock price declines.
Themes ETFs is set to introduce double-leverage and inverse ETFs under its Leverage Shares brand, while Corgi Funds, Direxion, and ProShares are each developing their own double-leverage products.
Bloomberg highlighted that SK Hynix’s U.S. market debut has ignited a new wave of leveraged ETFs. Industry players such as ProShares, Leverage Shares, and Rex Shares are preparing double-leverage products, with some firms also planning to launch inverse offerings. Bloomberg anticipates at least six new products to hit the market this week.
Wall Street analysts interpret this product launch trend as a natural progression following U.S. investors gaining direct access to SK Hynix, rather than merely an expansion of the ETF market.
Francis Oh of Rex Shares commented that this move allows them to tap into the latent demand from global investors who have been eager to invest directly in SK Hynix, which was previously only accessible through the Korean market.
However, some industry experts have voiced concerns about potential increased market volatility. John Cho, a Korean equities portfolio manager at JPMorgan Asset Management, cautioned that the proliferation of single-stock ETFs tends to amplify trading volumes and volatility in large-cap stocks. The surge in leveraged ETFs could indicate that retail investors are increasingly chasing stocks in the latter stages of market cycles, which is a concerning trend.
Rebecca Shin, an ETF analyst at Bloomberg Intel Corporationligence, warned that U.S. investors might encounter tracking errors similar to those observed in SK Hynix leveraged ETFs listed in Hong Kong.
Shin elaborated that if demand significantly outpaces the supply of the underlying stock, ETF managers may struggle to acquire the necessary shares for hedging. This could lead to a divergence between the ETF’s returns and the actual performance of the underlying asset.
This scenario has already played out in Hong Kong, where CSOP Asset Management’s leveraged ETF for SK Hynix recently grew to over 16 billion USD in assets under management before a market correction, making it the world’s largest single-stock leveraged ETF.
Reuters also noted that in South Korea, there have been ongoing debates about the volatility induced by leveraged ETFs tracking SK Hynix and Samsung Electronics. The report mentioned that the head of Korea’s financial regulatory body had previously expressed regret over approving such products.