After single-stock leveraged exchange-traded funds (ETFs) tracking Samsung Electronics and SK Hynix were launched, a sharp fall in South Korean stocks cut total ETF net assets by nearly 57 trillion won. Net assets of single-stock ETFs also rose from the 4 trillion won range to the 17 trillion won range before shrinking again to the 9 trillion won range, showing high volatility.

According to the Korea Securities Depository's securities information portal SEIBro on Tuesday, total net assets of domestic ETFs stood at 444.6665 trillion won as of Monday. That was down 56.9286 trillion won, or 11.35 percent, from 501.5951 trillion won on May 27, when single-stock leveraged ETFs were listed.

Samsung Asset Management's ETF net assets fell over the period to 171.8228 trillion won from 199.7751 trillion won, a drop of 27.9523 trillion won. Mirae Asset Management also fell by 18.6021 trillion won to 139.7334 trillion won from 158.3355 trillion won.

The combined decline at the two managers was 46.5544 trillion won, equivalent to 81.8 percent of the total fall in ETF net assets. Samsung Asset Management's market share slipped to 38.64 percent from 39.83 percent, while Mirae Asset Management edged down to 31.42 percent from 31.57 percent.

The decline in managers' ETF net assets is seen as largely driven by the sharp fall in domestic stocks that continued after the launch of single-stock leveraged products.

Since the listing of single-stock leveraged ETFs, the KOSPI has undergone a sharp price adjustment as concerns about the semiconductor cycle having passed its peak, geopolitical instability in the Middle East and foreign selling overlapped. On June 8, it dropped 8.37 percent in a single day.

ETF net assets reflect not only investor creations and redemptions but also price changes in underlying assets. Samsung Asset Management and Mirae Asset Management, which have large weightings in domestic equity and benchmark index ETFs, are also seen as having been heavily affected by valuation declines as stocks fell.

The swings in net assets for the single-stock products themselves were also large. Net assets of 16 single-stock leveraged and inverse ETFs using Samsung Electronics and SK Hynix as underlying assets rose to 17.6 trillion won on June 25 from about 4.4 trillion won on launch day. But on Tuesday they stood at about 9.92 trillion won, down 7.68 trillion won, or 43.6 percent, from the peak.

Net assets of Samsung Asset Management's two single-stock leveraged ETFs now stand at 5.8088 trillion won, accounting for more than half of total net assets in the related products. Estimated annual management fee income, calculated based on current net assets and fee rates, is seen reaching about 15.6 billion won.

As it is expected to generate the most management fee income among the related products, the burden on the managers that launched the products, including Samsung Asset Management, is also growing. Controversy over single-stock leveraged ETFs has spread beyond financial authorities' responsibility for product approval and post-launch oversight into political wrangling over responsibility.

The asset management industry says it is difficult to single out single-stock leveraged products as the cause of volatility, as multiple factors such as the stock slump, concerns about the semiconductor cycle having passed its peak, geopolitical instability and foreign selling acted in combination.

Still, concerns are emerging that as the controversy spreads into a political issue, blame could be concentrated on individual managers that launched the products or negative perceptions could grow across the related products more broadly.

Financial authorities on July 16 announced supplementary measures to raise the basic deposit for single-stock leveraged products to 30 million won in cash from the current 10 million won. They also plan to halt listings of new products until the market stabilises and to expand the trading unit to 20 units from 1 unit from November.

With regulation tightening, the possibility is also being raised that investor money may shift back to the U.S. stock market. Domestic investors net bought $2.878 billion of U.S. stocks from July 1 to 21, or about 4.2605 trillion won.

In particular, on July 20 to 21 they net bought $1.084 billion of SOXL, which tracks three times the daily return of the Philadelphia Semiconductor Index. A similar 집중 buying of SOXL by domestic investors was also seen in June.

An official at an asset management firm said, "The decline in total ETF net assets at managers is more affected by valuation declines in underlying assets due to the slump in domestic stocks than by single-stock leveraged products," adding, "Net assets of single-stock products are still higher than at launch."

Another official in the financial investment industry said, "As the domestic stock market has repeatedly surged and plunged over a short period, investor fatigue has grown," adding, "Some of the funds that returned to the domestic market are again moving to U.S. stocks and overseas leveraged products."