Hong Kong-Listed ETFs Maintain Strong Appeal Among Korean Investors, Outperforming Domestic Alternatives Designed to Curb Capital Outflows
Despite South Korea’s strategic move to introduce domestic single-stock leveraged Exchange-Traded Funds (ETFs) – a measure intended to repatriate capital – Korean investors are largely maintaining their significant positions in rival Hong Kong-listed products, indicating limited success for the new local offerings.
Data from the Korea Securities Depository, released on Tuesday, reveals a significant surge in Korean investors’ holdings of Hong Kong-listed single-stock leveraged ETFs during May. These elevated investment levels persisted through June 21, notably after South Korea launched its own competing domestic products on May 27.
Specifically, by the end of April, Korean investors had invested $117.7 million in CSOP’s Hong Kong-based leveraged SK hynix ETF and $75.4 million in its Samsung Electronics ETF. These figures saw substantial increases by the end of May, reaching $287.0 million for the SK hynix ETF and $123.2 million for the Samsung Electronics ETF, respectively.
Although the June data only accounts for holdings up to June 21, investor positions remained robust, nearly matching May-end levels at $279.6 million for the SK hynix ETF and $116.5 million for the Samsung Electronics ETF.
These consistent investment patterns strongly indicate that the introduction of domestic alternatives has, to date, failed to instigate any significant reallocation of investor capital.
South Korean financial regulators swiftly approved domestic single-stock leveraged ETFs, responding to an estimated 700 billion won ($455 million) flowing into Hong Kong-listed products launched the previous year. Authorities had posited that offering similar investment vehicles domestically would effectively stem capital outflows and bolster the Korean won.
CSOP, recognized as Hong Kong’s largest ETF manager, pioneered the world’s first single-stock leveraged ETF tracking Samsung Electronics in May 2025, followed by a similar product linked to SK hynix in October. Currently, the SK hynix ETF stands as the most popular Hong Kong-listed ETF among Korean investors, with the Samsung Electronics ETF ranking sixth.
CSOP confirmed that both its existing and new investor base have consistently purchased these products.
According to Lee Je-chung, an executive director at CSOP, “Hong Kong-listed leveraged ETFs provide Korean investors with unparalleled trading flexibility, a feature currently unavailable in the domestic market.”
This flexibility stems from the Hong Kong market’s extended trading hours, which remain open for an additional hour after the Korean market closes. This allows investors to promptly react to developments in Korea and adjust their positions in key stocks like Samsung Electronics and SK hynix. Furthermore, trading via the Hong Kong market offers continuous access even when Korean markets are closed for public holidays.
Lee further elaborated, stating, “These products offer investors crucial additional opportunities to actively manage their portfolios and potentially boost returns.” He added, “Coupled with attractive tax advantages and the Hong Kong dollar’s stable peg to the US dollar, these cumulative factors have consistently drawn both established and new investors to these funds.”
The less-than-successful outcome has ignited criticism, suggesting that regulators might have significantly overestimated the overall impact and importance of Hong Kong-listed products within the broader landscape of Korean investors’ overseas investment portfolios.
Industry experts highlight that the total assets invested in Hong Kong-listed leveraged ETFs amount to only several hundred million dollars, a stark contrast to Korean investments in US stocks and ETFs, which collectively reach tens of billions of dollars.
Lee reiterated, “The capital allocated to Hong Kong-listed leveraged ETFs constitutes merely a small fraction of Korean investors’ extensive overseas portfolios.” He then suggested, “If the primary goal is to foster capital repatriation, policymakers should explore more comprehensive measures targeting significantly larger overseas markets.”
Another industry official contended that attempts to steer retail investors’ overseas investment decisions are unlikely to yield any substantial impact on the national currency.
The official emphasized, “Fundamentally, encouraging Korean corporations with international operations to repatriate and convert their foreign-currency earnings into won would constitute a far more effective strategy for currency support than focusing on retail investor investments.”
Even South Korea’s highest financial regulator has openly voiced skepticism regarding the efficacy of this policy.
During a media briefing on Monday, Lee Chan-jin, Governor of South Korea’s Financial Supervisory Service, stated that the launch of domestic single-stock leveraged ETFs had not only failed to meet its stated objectives but had also generated an array of unintended consequences.
Lee expressed his regret, saying, “I regret not opposing the decision.” He further noted, “The actual volume of capital repatriated from Hong Kong has been negligible.”
He also highlighted that these domestic products have inadvertently amplified market volatility, elevated the risk of losses for retail investors, and fostered excessive trading activities, primarily to the advantage of securities firms.
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