Southern Two Times Long SK Hynix ETF Drops 83% Amid Market Volatility

On the 29th, South Korean semiconductor company SK Hynix's stock plunged more than 19% during trading, marking its largest single-day drop in history. In the Hong Kong market, the Southern 2x Long Hynix ETF fell over 28% intraday, narrowing its loss to 13.99% by close, trading at HK$32.70.

On July 27, Horizons ETFs announced that its 2x leveraged and inverse products linked to individual stocks such as SK Hynix, Samsung Electronics, NVIDIA, and Tesla will officially transition to a flexible leverage structure on August 3, under which the leverage ratio may be reduced to a minimum of 1.1x or -1.1x under extreme market conditions.

Over the past month, SK Hynix's stock price has experienced a significant correction. On June 25, the company's stock reached a high of 2.987 million KRW per share on the Korean market; since then, it has steadily declined, closing at 1.401 million KRW per share on July 29—a drop of more than 50% from its peak.

The "South Korea 2x Long Hynix" experienced a more severe decline, falling from a high of HK$193.65 on June 25 to a closing price of HK$32.70 on July 29, a drop of 83%.

Public information shows that "Southern 2x Long SK Hynix" is fully named the Southern DWS SK Hynix Daily Leveraged (2x) Product (HK Stock Code: 07709), issued and managed by Southern DWS Asset Management Limited (hereinafter referred to as Southern DWS), and officially listed on the Hong Kong Stock Exchange on October 16, 2025.

The fund's market price rose from HK$17.5 at the beginning of the year to a high of HK$193.65, more than tenfold. After nearly a month of adjustment, the 2x Long Hynix ETF has returned to its late February price this year.

According to media reports, at an event on July 16, Ding Chen, CEO of Harvest ETF, stated that Harvest’s globally first two-times leveraged product on SK Hynix, launched just eight months ago, had reached a size of HK$130 billion as of June this year, becoming the largest leveraged equity product in the world.

Along with the decline in market prices, the fund's assets have also "shrunk." Latest data shows that as of July 29, its asset size had fallen to just HK$31.9 billion, a reduction of nearly HK$100 billion in about a month—a decline of more than 70% from its peak.

On July 29, SK Hynix released its second-quarter 2026 financial results. The data showed that the company's revenue for the quarter reached KRW 7.932 trillion (approximately CNY 368.838 billion), a year-over-year increase of 257%, but below the market expectation of KRW 8.4 trillion; operating profit amounted to KRW 6.054 trillion (approximately CNY 281.511 billion), surging 557% year-over-year, also falling short of the expected KRW 6.4 trillion; net profit reached KRW 9.392 trillion (approximately CNY 436.728 billion), increasing more than twelvefold year-over-year.

According to Yonhap News, during the post-earnings conference call, SK Hynix addressed concerns about reduced investment in AI infrastructure, stating, “As AI competition among cloud service providers continues and their services expand, we expect investment in AI infrastructure to remain stable and sustained beyond next year.”

Regarding negotiations on next year's high-bandwidth memory (HBM) pricing, SK Hynix stated: “Due to contractual relationships, specific prices and details are difficult to disclose,” and added: “We are currently negotiating volume and pricing with key customers, and discussions are progressing smoothly based on strong customer demand.”

According to reports, Kim Seok-hwan, a researcher at Future Asset Securities, said, "SK Hynix's revenue, operating profit, and operating margin for the last quarter all fell short of market expectations."

Reuters reported that the company downplayed market concerns that its expansion could lead to oversupply, stating it will dynamically adjust its investment scale based on market demand.

SK Hynix stated: "Major technology companies continue to invest heavily in artificial intelligence infrastructure, driving rising demand for new supplies. Revenue generated from AI services will continue to support related capital investments, suggesting that the growth momentum for memory chips is likely to persist."

The report, citing analysts, stated that long-term supply agreements may help companies better forecast future demand, but they can also limit short-term price increase potential, one of the factors contributing to the company's weaker-than-expected performance.

The analyst added that SK Hynix has a higher proportion of high-bandwidth memory (HBM) business, but the price increases for these chips have been less than those for traditional memory chips.

On July 24, the Hong Kong Securities and Futures Commission issued the revised "Circular on Listed Structured Funds" (the "Circular"), which sets out regulations for listed structured funds, including leveraged and inverse products.

For leveraged and inverse products, additional requirements stipulate that such products, whose exposure fluctuates significantly with market conditions, must adopt a flexible leverage mechanism, whereby the daily leverage ratio may be dynamically adjusted but must not exceed the prescribed leverage upper limit (the conventional leverage range is +2x to -2x). At the close of each trading day, the issuer must publish the target leverage ratio for the next trading day on the product’s official website and the HKEX website.

The circular states that leveraged and inverse products are short-term trading instruments, fundamentally different from traditional long-term investment ETFs; products approved by the Hong Kong Securities and Futures Commission must not use the term "ETF" in their names and must be labeled as either "Leveraged Products" or "Inverse Products"; their names must include the leverage/inverse multiple and the word "Daily" to indicate their daily rebalancing feature.

Affected by the new regulations, Southern Asset Management announced on July 27 that its 2x leveraged and inverse products linked to individual stocks such as SK Hynix, Samsung Electronics, NVIDIA, and Tesla will officially transition to a flexible leverage structure on August 3. Under extreme market conditions, the leverage ratio may be reduced to a minimum of 1.1x (for inverse products, the leverage ratio may be reduced to a minimum of -1.1x). The product names will also be updated accordingly.

Screenshot from the Southern Asset Management website

Guo Yiming, Director of Investment Advisory at Jufeng Investment Advisory, told China News Service that previously, for 2x leveraged fund products, regardless of the magnitude of underlying asset fluctuations or market liquidity conditions, daily price movements were strictly amplified by two times. Once major stocks experienced sharp intraday volatility, the fund’s swap exposure would rapidly reach its maximum limit, forcing market makers to passively close positions to manage risk. This often led to significant deviations between the fund’s net asset value and the underlying stock’s performance, along with sudden drops in premium, with all risks borne entirely by investors and issuers.

"After switching to the flexible leverage mechanism, the product still maintains a maximum leverage limit of 2x, but the fund can daily adjust its actual leverage based on individual stock trading activity, remaining swap capacity, and intraday volatility—under extreme market conditions, leverage can be reduced as low as 1.1x. Additionally, new mandatory requirements include daily disclosure of real-time leverage and product renaming to indicate variable leverage," said Guo Yiming.

In Guo Yiming’s view, compared to the old mechanism, issuers have significantly reduced operational risks during extreme market conditions and minimized extreme premium or discount fluctuations. For ordinary investors, the biggest change is that the elasticity of gains and losses is no longer fixed; during volatile market conditions, price movements will be far below the previous fixed 2x level. This means investors can no longer rely on the traditional assumption of a fixed 2x leverage and must pay close attention to the disclosed actual leverage ratio each day before trading.

Guo Yiming noted that this type of product is suitable only for short-term trading and not for medium- to long-term holding; investors should be aware of the risks.

This article is from the WeChat public account "China News Weekly" (ID: jwview), author: Wei Wei.