The sharp drop in the South Korean stock market has prompted investors to reevaluate the $290 billion leveraged ETF craze.

In the AI-driven sell-off in the South Korean stock market, market attention has shifted back to one of the fastest-growing areas for retail investors: leveraged exchange-traded funds (ETFs). These products have long been used by day traders, but this week saw significant volatility in the stock prices of Samsung Electronics and SK Hynix, and South Korea's top market regulator expressed regret over allowing the issuance of single-stock leveraged ETFs, sparking a reevaluation among investors on whether these ETFs are exacerbating market volatility. This issue became even more pressing on Tuesday, when South Korea's benchmark Kospi index plummeted by 10%, triggering a global sell-off in semiconductor stocks and dragging down European and US stock indices. While few investors would solely attribute this downturn to leveraged ETFs, strategists increasingly see them as part of speculative mechanisms, which can amplify market volatility once momentum shifts. With leveraged ETF products reaching unprecedented scale, market attention towards them is also heating up. Data shows that the assets under management of leveraged ETFs currently exceed $290 billion, with the market size in Asia surpassing $45 billion and in the US exceeding $220 billion. Alexander Altmann of Barclays Stock Tactical Strategy estimates that in the past 10 trading days, the daily rebalancing of US leveraged ETFs averaged about $20 billion, roughly four times the average level of the past year.