Bank of Korea Warns High-Leverage Chip-Linked Offshore Derivatives Amplify Market Swings

South Korea's central bank warned in its semiannual monetary policy report on September 10 that offshore derivatives tied to domestic chipmakers and highly leveraged hedge funds are significantly amplifying volatility in the country's stock market. It singled out U.S.-based AI-focused hedge fund Situational Awareness, saying the fund reportedly used up to 4x leverage when building and unwinding positions in global memory chip companies, and cited it as one factor that exacerbated the KOSPI selloff in July 2026.

According to the report, record overseas capital inflows have magnified the leverage structure. BlackRock's U.S.-listed Korea ETF attracted a record $2.8 billion in a single week in July, while the market value of Hong Kong-listed leveraged ETFs tracking Samsung Electronics and SK Hynix surged more than 20-fold in the first half of 2026. Global investment banks' hedging of total return swaps through Korean cash stocks, futures and options also clearly amplified domestic price swings.

Risks have begun spilling across markets. In July 2026, an abnormal trade in SK Hynix triggered nearly $60 million in liquidations in the offshore crypto market, highlighting the cross-market risks posed by leveraged products linked to Korean chip stocks. The central bank said the concentration of semiconductor stocks, foreign investors' portfolio rebalancing, and the accumulation and unwinding of domestic leverage together drove unprecedented KOSPI volatility from January to July 2026.

On July 28-29, the KOSPI plunged more than 10% and nearly 6% on consecutive days, triggering circuit breakers. About 350,000 to 460,000 leveraged accounts were forcibly closed, and retail investors lost roughly 56.3 trillion won in leveraged ETFs. The Bank of Korea called for stronger monitoring of overseas derivatives tied to Korean chipmakers and for enhanced cross-border regulatory cooperation.