When your two biggest bets in a market account for nearly 40% of the entire index, the banks holding the other side of the trade start getting nervous. That’s exactly what’s happening now with Samsung Electronics and SK Hynix, as global prime brokers reduce the leveraged exposure they’re willing to extend to hedge funds piling into Asia’s AI chip darlings.

The leverage problem hiding in plain sight

Samsung and SK Hynix collectively represent roughly 40% of the Kospi Index and approximately half of the MSCI Korea Index. That kind of concentration means any sharp move in either stock doesn’t just affect a portfolio. It moves the entire market.

CSOP’s Hong Kong-listed 2x leveraged ETFs tracking these stocks now manage around $3.3 billion in assets. South Korea itself launched between 16 and 18 single-stock leveraged ETFs tied to Samsung and SK Hynix around May 27, 2026, with initial assets under management estimated at 1.33 to 1.34 trillion won. A single fund manager reportedly attracted roughly 300 billion won in foreign inflows for related ETF offerings.

During the May 15, 2026 selloff, rebalancing activity from leveraged ETFs accounted for approximately 17% of SK Hynix’s daily trading volume and about 10% of Samsung’s.

Why banks are tightening the leash now

Both Samsung and SK Hynix rode the AI chip wave to significant gains, fueled by insatiable demand for high-bandwidth memory and advanced semiconductors. The explosion of leveraged ETFs, both in Hong Kong and domestically in South Korea, added a layer of mechanical selling pressure that didn’t exist a year ago.

What this means for investors

For hedge funds, reduced access to prime brokerage financing means higher costs and smaller position sizes. Several hedge funds reportedly still see value in both names despite the volatility.

Retail investors in South Korea, who have enthusiastically embraced these new leveraged ETFs, should pay particular attention. The initial inflows were massive, with over a trillion won flowing into these products within days of launch. But 2x daily return products are designed for short-term trading, not buy-and-hold strategies. Volatility drag, the mathematical erosion that occurs when a leveraged product compounds daily returns over time, can quietly destroy capital even in a market that ends up flat.

A 2x leveraged ETF needs to increase its exposure on up days and decrease it on down days to maintain its target multiple. When these products collectively represent a meaningful slice of daily volume, their mechanical trades can overwhelm fundamental flows. During the May 15 selloff, this dynamic was already visible, with leveraged ETF rebalancing representing 17% of SK Hynix’s volume and 10% of Samsung’s.