web3: Leveraged ETFs Boost AI Stocks, Closing Rebalancing May Amplify Volatility

CoinWorld reports:

Leveraged ETFs are becoming a significant force in the AI tech stock market. An analysis by Bloomberg of around 800 bullish leveraged stock ETFs shows that the nominal exposure of these products to AI-related stocks has increased from 26% in 2022 to 58% by mid-2026, with funds increasingly concentrated in a few chip stocks.

Exposure Concentrated in Chip Stocks

In recent years, the overall nominal exposure of leveraged ETFs has expanded about fourfold, but what is more concerning is the increasing concentration of holdings. Among single-stock leveraged ETFs, four memory chip companies—SK Hynix, Samsung Electronics, Micron Technology, and SanDisk—account for nearly half of the exposure.

• SK Hynix-related products saw net inflows of approximately $10.8 billion
• Samsung Electronics-related products saw net inflows of approximately $4.3 billion
• Micron Technology and SanDisk combined saw about $4.5 billion

Rocky Fishman, founder of Asym Research, stated that the recent changes in the leveraged ETF market are not just about scale but also about funds shifting towards more volatile targets, especially single-stock leveraged ETFs.

End-of-Day Rebalancing Impact Intensifies

Leveraged ETFs need to maintain a set leverage ratio daily, which means they must increase their positions when the underlying asset rises and decrease them when it falls. In some cases, inverse products may also be forced to trade in the same direction, further concentrating volatility during the end-of-day period.

Currently, the global leveraged ETF asset size is about $250 billion, accounting for only a small portion of global ETF assets, but the average daily trading volume represents 16% of all ETF transactions. Since rebalancing is typically completed at the closing price, such adjustments will coincide with index adjustments, options hedging, and institutional end-of-day orders.

Nomura estimates that at the peak scale in June this year, if the underlying securities fluctuate by 1%, leveraged ETFs may need to buy and sell about $10 billion in securities through rebalancing. RBC Capital Markets believes this mechanism is similar to short Gamma in the options market, which may continue to amplify price swings after significant volatility.

Korean Market Provides a Case Study

The recent volatility in the Korean market has been viewed by many analysts as a real-world case study. Earlier this year, Korean regulators approved over a dozen leveraged ETFs tracking Samsung Electronics and SK Hynix, aiming to keep local funds that would flow to similar overseas products in the domestic market.

Among them, the CSOP SK Hynix leveraged ETF listed in Hong Kong reached nearly $17 billion in assets at its peak, briefly becoming the world's largest single-stock leveraged ETF. After the local related products were launched, they attracted over $9 billion in inflows within two months. Subsequently, the Kospi index experienced significant intraday fluctuations, prompting Korean regulators to raise the minimum margin requirements for investors in related products and suspend the launch of new products.

However, the market did not attribute this round of sell-offs entirely to leveraged ETFs. Weak chip prices, disappointing corporate earnings, rising borrowing costs, and hedge fund liquidations have all been considered contributing factors. Some strategists believe that leveraged ETFs act more like amplifiers rather than the root cause.

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