The Bank of Korea has raised a warning about the fast growth of high-risk investments linked to the artificial intelligence boom. The central bank said leveraged exchange-traded funds, or ETFs, tied to major chip firms such as Samsung Electronics and SK Hynix have added to market volatility.
The warning comes as South Korea enjoys a strong rise in its semiconductor sector. Demand for memory chips has grown due to the rapid growth of artificial intelligence. This has helped major chip firms gain more attention from local and overseas investors.
But the Bank of Korea sees a risk when investors use borrowed money or leveraged products to bet on the same stocks. Such products can boost gains when prices rise. They can also make losses much larger when prices fall.
Leveraged ETFs Grow Very Fast
One of the clearest signs of this risk is the sharp rise in Hong Kong-listed ETFs linked to Samsung Electronics and SK Hynix. The value of these leveraged ETFs grew more than 20-fold in the first half of 2026.
That is a very large rise in a short period. It shows how quickly investors have moved toward products that offer stronger exposure to South Korean chip stocks.
A normal ETF can track a group of shares or a single asset. A leveraged ETF uses financial tools to seek a larger daily return than the asset it tracks. For example, a two-times ETF may seek twice the daily move of its target stock or index.
This can look attractive during a strong market rally. However, the same structure can create much larger losses when prices move the other way.
Samsung and SK Hynix Lead the Market
Samsung Electronics and SK Hynix have become central parts of South Korea’s stock market. Both firms are major players in the global memory chip business.
Their importance has grown as demand for AI systems has increased. Modern AI systems need large amounts of advanced memory chips. This has helped create strong expectations for the future earnings of major chip firms.
The Bank of Korea said Samsung and SK Hynix together made up about half of the market value of the benchmark KOSPI index.
This high share matters because a large move in these two companies can have a strong effect on the wider market. If their shares rise sharply, the KOSPI can get a major boost. If their shares fall, the wider index can also face heavy pressure.
Two Chip Firms Drove Much of the Rise
The central bank said Samsung Electronics and SK Hynix were responsible for about 77% of the KOSPI’s gains from January through June.
This figure shows how much the wider Korean market depended on the performance of two major companies.
The KOSPI rose from 8,000 to above 9,000 during the period. As the index moved higher, the influence of Samsung and SK Hynix became even greater.
The Bank of Korea said the two companies’ contribution to market swings rose to 99%. This means almost all of the changes in the index during the period came from these two firms, according to the central bank’s assessment.
Such a high level of concentration can create a risk. If investor views on the AI and chip sector change, the effect can spread quickly across the whole market.
Why Leverage Can Make a Fall Worse
Leverage means the use of borrowed money or financial tools to gain a larger market position.
Suppose an investor has $100 and uses a two-times leveraged product. The product may give exposure equal to $200. If the asset rises, the gain can be much larger than the gain from a normal $100 investment.
But the same idea works in reverse. A fall in the asset can create a much larger loss.
This can lead to forced sales. When prices fall, investors or funds may need to cut their positions to reduce risk. Many investors may do this at the same time.
That extra selling can push prices down even more. A fall in share prices can then lead to more sales. This can create a cycle that makes market moves much sharper.
The Bank of Korea is concerned that leveraged ETFs can add to this type of pressure.
Overseas ETFs Add Another Risk
The central bank is also concerned about the growth of South Korean chip products outside the country.
Hong Kong-listed ETFs tied to Samsung and SK Hynix grew more than 20-fold during the first half of 2026. These products give overseas investors another way to take large positions in South Korean chip stocks.
This creates another link between global markets and South Korea.
If global investors buy these products in large amounts, money can flow into Korean stocks. If they later decide to reduce their exposure, money can move out just as fast.
The Bank of Korea said such overseas products can create unexpected spillover effects in the domestic market. In simple terms, events outside South Korea can have a stronger effect on Korean share prices through these products.
AI Boom Brings Both Hope and Risk
The strong demand for AI chips has helped South Korea’s economy. Samsung Electronics and SK Hynix are major suppliers to the global technology industry, so higher chip demand can support exports, company profits and investment.
The Bank of Korea itself has noted that the strong semiconductor cycle has helped the Korean economy. Its recent economic assessment said the semiconductor cycle and its wider effects have supported growth.
The problem is not the AI sector itself. The concern is the level of market exposure and leverage that can build around a fast-growing theme.
When investors expect a sector to rise for a long time, they may take larger risks. That can push prices higher. But if expectations change, those same positions can create a sharp fall.
Foreign Exchange Is Another Concern
The Bank of Korea also pointed to a possible return of foreign-exchange volatility.
The Korean won faced sharp moves earlier in the year. Global events, changes in US interest rate expectations and concerns about Korean economic growth affected the currency.
The central bank said changes in the US Federal Reserve’s rate path could create more pressure on the foreign exchange market.
A weaker or more volatile won can also affect investors who hold Korean assets through overseas products. This adds another layer of risk to an already active market.
Interest Rates and Financial Stability
The Bank of Korea has also kept a close watch on financial stability.
The central bank raised its base rate by 25 basis points from 2.75% to 3.00% on August 27, 2026. It said inflation could remain above its target for a considerable period and noted the need to watch financial stability risks.
The bank has also warned that higher leverage in markets can increase price swings. Its financial stability work has noted that leveraged investment can make market declines worse because forced sales can add to the pressure.
This makes the latest warning about leveraged AI ETFs part of a wider concern about financial risk.
What This Means for ETF Investors
The warning does not mean that all ETFs are unsafe. ETFs remain a widely used investment tool, and many funds have simple structures that do not use leverage.
The main concern is the use of leverage and the strong focus on a small number of companies.
Investors who use leveraged ETFs need to understand that these products can behave very differently from normal ETFs. Daily price moves can have a major effect on returns, especially when an investor holds such a product for more than one day.
A strong rise in the target stock does not always mean a leveraged ETF will deliver the simple multiple of that rise over a long period.
A Market Driven by Two Major Stocks
The latest warning shows how much influence Samsung Electronics and SK Hynix now have on South Korea’s market.
The two firms drove about 77% of KOSPI gains from January through June. Their role in market swings rose to 99% as the index moved from 8,000 to above 9,000. At the same time, Hong Kong-listed leveraged ETFs linked to the two companies grew more than 20-fold in the first half of 2026.
These numbers explain why the Bank of Korea wants closer oversight of high-risk financial products.
The Bigger Picture
South Korea’s AI and semiconductor boom has brought major benefits to the economy and its largest technology firms. Strong chip demand has helped exports, profits and market values.
Yet the same boom has also created a large concentration of investor money around a small group of companies. The rapid growth of leveraged ETFs adds another layer of risk.
The Bank of Korea’s message is simple: strong markets can also carry hidden risks when investors use too much leverage.
For ETF investors, the key lesson is that higher potential returns often come with higher risk. Leveraged products can produce large gains during a rally, but they can also make losses much worse during a fall.
As AI remains a major force in global markets, South Korea will likely stay at the center of the semiconductor story. The challenge for investors and policymakers will be to capture the benefits of that growth without allowing leverage and market concentration to create larger financial shocks.
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