As enthusiasm for artificial intelligence trades cools and regulators tighten rules to curb excessive demand, leveraged exchange-traded funds tied to South Korean chip giants such as Samsung Electronics and SK hynix are witnessing substantial capital withdrawals.

Data compiled from fund flows show that since August, leveraged ETFs tracking Samsung Electronics have recorded net outflows of $381 million, while those tracking SK hynix have seen net outflows of $601 million, combining for nearly $1 billion in total exits. This marks the first monthly net outflow for such products since their launch in late May.

These leveraged ETFs, designed to deliver twice the daily price movement of Samsung Electronics and SK hynix, initially attracted a wave of capital chasing AI chip momentum. However, they have also been criticized for amplifying market swings, particularly during July's global AI sector correction when South Korea's KOSPI index suffered a historic 22% selloff, sharply elevating volatility.

In response, South Korean regulators have stepped up oversight of leveraged ETFs, including raising minimum margin requirements for new investors and mandating a five-day simulated trading period before participation. Tighter rules, combined with fading AI trade sentiment, have intensified outflows from these leveraged products.

KOSPI Turmoil Drives Retail Investors Toward U.S. ETFs

Persistent turbulence in the domestic stock market is pushing investors toward overseas assets. According to data from ETF Check released on August 25, among the top ten domestic ETFs by net inflows on August 24, nine were invested in U.S. assets, with funds concentrating on ETFs tracking major American indices like the S&P 500 and Nasdaq.

Specifically, the TIGER U.S. Nasdaq 100 ETF saw daily net inflows of 50.2 billion Korean won, ranking first among all locally listed ETFs. The KODEX U.S. Nasdaq 100 ETF attracted 49.6 billion won, the TIGER U.S. S&P 500 ETF drew 31.6 billion won, and the KODEX U.S. S&P 500 ETF pulled in 29.9 billion won. Additionally, the TIGER U.S. Philadelphia Semiconductor Nasdaq ETF gained 29.6 billion won, while the ACE U.S. Mega Tech Top 7 Plus ETF, focused on major U.S. tech stocks, recorded inflows of 19.1 billion won.

Analysts attribute this trend to the sharp decline in the domestic market. On August 24, the KOSPI fell 3.12%, with heavyweight stocks Samsung Electronics and SK hynix plunging 8.7% and 3.41%, respectively. Faced with such volatility at home, investors are clearly favoring U.S. index ETFs to diversify risk.

However, weekly flow data reveals divergent strategies between retail and institutional investors. Over the past week, the most-bought ETF by individual investors was the TIGER U.S. S&P 500 ETF, with net purchases of 198.2 billion won. The KODEX U.S. S&P 500 ETF saw 106.2 billion won in net buying, and the KODEX U.S. Nasdaq 100 ETF recorded 102.7 billion won, both ranking near the top of retail favorites.

In contrast, institutions directed the most capital into the KODEX 200 Target Weekly Covered Call Options ETF, with net buying of 78 billion won, followed by the KODEX SK hynix Single Stock Leveraged ETF at 61.4 billion won, and the KODEX 200 ETF at 53.3 billion won. Institutional funds remain largely anchored to domestic indices and related strategies.

Industry insiders note that with unstable domestic market conditions, already subdued investment sentiment is driving retail investors toward safer options. One financial investment professional commented, "In the first half, retail investors would step in to buy dips in the KOSPI, but unless the index shows a sustained upward trend going forward, it's hard to see a shift in their attitude."