Reading the Danger Signals of Samsung Electronics & SK Hynix Leverage ETFs!

A 10 Trillion Won Frenzy on the First Day of Listing

On May 27, the first day of listing, the Korea Institute of Financial Education website was paralyzed all day long. This was because thousands of people logged in simultaneously from early morning to buy ETFs that track Samsung Electronics and SK Hynix by two times. Today's conclusion!

• This product is absolutely forbidden🚫 for retirement funds.

• If you absolutely must do it, do it with a very small amount of money that you are okay with losing.

The Single-Stock Leverage Fever That Swept the Market

As soon as the 2x leverage based on two of Korea's representative semiconductor stocks, Samsung Electronics and SK Hynix, was listed on the stock market, a massive lump sum of 10 trillion won rushed in on the first day. Eight asset management companies—including Samsung, Mirae Asset, Korea Investment, KB, Shinhan, Hanwha, Kiwoom, and Hana—jumped in at the same time.

• For the single-stock 'Samzons' 2x leverage released by Samsung Asset Management, the domestic number one, the transaction amount for a single day alone reached 6.3 trillion won.

• With a trading volume of 230 million shares, investors' attention was hyper-focused on Korea's first-ever listed single-stock leverage product.

⚠️ Reading the Signals of Warning Devices

The purchase requirements for this product are as follows.

• 1 hour of existing leverage education + 1 hour of advanced education dedicated to single stocks ⇒ A total of 2 hours of mandatory education.

• Holding a basic deposit of 10 million won evaluated in cash, stocks, ETFs, etc., in the account.

The government setting up a 2-hour education requirement and a 10 million won threshold is a kind of warning device indicating that it is that dangerous. However, instead of listening to the warning, people rushed in from early morning to receive the education, with the number of applicants exceeding 60,000 on the day before the listing alone, paralyzing the website. So far, the number of people who completed the education has exceeded 260,000. This is the current atmosphere in South Korea.

The Trap of Leverage: 'Negative Compounding Effect'

ETFs are basically based on diversified investment by putting multiple stocks into one basket, but this product contains only one stock (either Samsung Electronics alone or SK Hynix alone) in the basket. Leverage is like a loudspeaker that doubles both profits and losses.

• If Samsung Electronics rises by 1%, you earn 2%, but conversely, if it falls by 1%, it is a structure where you lose 2%.

• The real trap is 'compounding.' If a regular individual stock rises 10% and then falls 10%, it returns almost to the starting point, but a 2x leverage drops by 4%.

• Even if it just repeats going up and down a few times, a 'negative compounding effect' occurs where money decreases even if you just stay still.

Analyzing the case of the United States over the past year, an individual stock made an 18% profit, but a 2x leverage product on the same stock actually suffered a 20% loss. Because it is a structure where money leaks out the more the stock price fluctuates up and down, leverage products are not suitable❌ for long-term investment.

• Therefore, for leverage products, a short-term trading strategy where you enter briefly, see profits, and come out is advantageous.

• If you hold onto it forever like the US case, you could see massive losses.

The Real Reason the Government Eased Regulations

The reason the government permitted such a dangerous product is because of 'Seohak Gaemi' (Korean retail investors investing in overseas markets). Since investors keep going abroad to places like the US or Hong Kong, the government's inner thought is for that money not to leave and to be rolled domestically. Originally, under Korean regulations, an ETF had to contain at least ten different stocks, and one stock could not exceed 30%, but the government loosened those regulations. One must recognize that leverage products were not created for your retirement, but for the purpose of blocking capital outflow.

Volatility and Tax Cautions

In the United States, there is QLD, which tracks the Nasdaq index by two times, and TQQQ, which tracks it by as much as three times. However, the US products track an index where hundreds of companies are gathered, while this Korean product is just a single individual stock, either Samsung Electronics or SK Hynix. An individual stock fluctuates much more drastically than an index, and the stock price can jump significantly based on a single piece of semiconductor industry news or an earnings announcement.

• On top of that, when a two-times multiplier is attached, the volatility becomes truly tremendous.

• In addition, while regular Samsung Electronics stocks have no tax on capital gains unless you are a major shareholder, a 15.4% dividend income tax is imposed on the capital gains of leverage ETFs due to the reason that it is a 2x leverage.

• However, because of the 'tax base reference price,' the actual tax deducted is often less than expected or almost non-existent.

The 3 Great Principles to Protect Retirement Assets

For the 5060 generation, the most important thing is not profits, but not losing, and having peace of mind. The principles are exactly three.

• Never put core retirement funds into leverage🚫. Leave living expenses in 1x index products like the KOSPI 200 or Nasdaq.

• Operate leverage like a satellite, using only a very small part of your total assets and only with money whose loss would not affect your daily life.

• Never hold leverage for a long time. This is absolutely not a retirement product🚫 to bury away for the long term.

Investment is not won by the person who goes fast. The person who survives until the end wins. If you run at double speed and fall in the middle, everything built up so far disappears. Slowly, safely, and until the end. That is the real weapon of our generation.

Original Source
The Trap of Samzon/Hynix 2x Leverage