Bloomberg published an analysis on May 15 stating that Korean stocks have become a 'testing ground' where leverage drives market movements more than corporate fundamentals, following a May 13 event in which SK Hynix dropped 15% and forced leveraged ETF operators to sell billions of dollars in shares. The report highlighted that approximately 10 Samsung Electronics and SK Hynix-related leverage ETFs listed in Seoul in May have declined roughly 40% since listing. Bloomberg attributed the volatility to a feedback loop where ETF rebalancing requirements create forced selling that amplifies downward price movements, with individual investors holding long-term positions bearing the largest losses. Goldman Sachs estimated that leverage ETFs sold approximately $5 billion (around ₩7.4 trillion) in SK Hynix shares on May 13 to adjust exposure ratios, representing about 18% of that day's combined spot and futures trading volume. The analysis noted that this represents a market dynamic where 'stock prices move based purely on fund flows without fundamental changes.'
Bloomberg Analysis Identifies Leverage as Primary Market Driver
Bloomberg's May 15 article titled 'Korea's AI Stock Plunge Becoming Lesson in Leverage Excess' stated that 'Korean stocks led by AI are becoming a case study of what happens when leverage becomes a stronger market driver than fundamentals.' The report documented that when SK Hynix shares fell 15% on May 13, single-stock leveraged ETF operators were forced to sell tens of billions of dollars worth of shares to maintain position ratios, and this selling created a feedback loop that further depressed prices.
Goldman Sachs Estimates $5 Billion Forced Selling on May 13
Goldman Sachs estimated in a report to institutional investors that leverage ETFs likely sold approximately $5 billion (around ₩7.4 trillion) in SK Hynix shares to adjust exposure ratios. This volume represented approximately 18% of SK Hynix's combined spot and futures trading volume on that day.
SK Hynix ADR Listing Creates Seoul-New York Market Linkage
Bloomberg raised the possibility that volatility in Korean stocks could spread to global markets, noting that SK Hynix holds a large market capitalization weight in KOSPI and recently listed ADRs on Nasdaq in the United States, creating a structure where New York and Seoul markets are connected nearly 24 hours a day. The report documented that when SK Hynix ADRs surged 27% in the United States the previous day, KOSPI rebounded more than 7% intraday on May 15, showing ADR movements reflected in KOSPI.
Analysts Describe Leverage Feedback Loop Mechanism
Arun Singhal, CEO of Indicus Capital, told the outlet that 'Korea is becoming a real-time testing ground showing what happens when leverage begins to move the market itself beyond just reflecting it,' adding that 'when stock prices rise, more leverage flows in, and leverage amplifies the rise further, then the same mechanism operates in reverse during downturns.' Adil Ebrahim, head of equities at Clay Group, stated that 'speculative products often end in tears when the market turns,' adding that 'this is exactly that moment, where corporate fundamentals haven't changed but leverage ETFs are engaging in forced selling that amplifies the decline.'
FAQ
What did Bloomberg say about Korean stocks on May 15?
Bloomberg published an analysis stating that Korean stocks have become a 'testing ground' where leverage drives market movements more than corporate fundamentals, following a May 13 event in which SK Hynix dropped 15% and forced leveraged ETF operators to sell billions of dollars in shares to maintain position ratios.
How much did Goldman Sachs estimate leverage ETFs sold on May 13?
Goldman Sachs estimated in a report to institutional investors that leverage ETFs likely sold approximately $5 billion (around ₩7.4 trillion) in SK Hynix shares on May 13 to adjust exposure ratios, representing about 18% of that day's combined spot and futures trading volume.
How did SK Hynix ADR movements affect KOSPI on May 15?
Bloomberg documented that when SK Hynix ADRs surged 27% in the United States the previous day, KOSPI rebounded more than 7% intraday on May 15, showing ADR movements reflected in KOSPI through the nearly 24-hour market linkage created by the recent Nasdaq ADR listing.
