Hong Kong to Allow 1.1x and 1.5x Leverage for Samsung Electronics and SK hynix [Weekend Money]

The Hong Kong financial authorities have overhauled their regulatory framework for leverage and inverse (L&I) products, introducing a 'flexible leverage structure' that allows leverage ratios to fluctuate according to market conditions. As a result, from this month onward, the leverage ratios of Samsung Electronics and SK hynix leverage products listed in Hong Kong may vary, and the term 'maximum (MAX, 最多)' will be added to their names.

According to Kiwoom Securities on August 1, CSOP Asset Management, a Hong Kong asset manager, announced on July 27 that it would revise the investment objectives and product names of 12 single-stock leverage and inverse products managed by CSOP. These changes will take effect from August 3.

CSOP Asset Management was the first to implement the revised regulatory framework for leverage and inverse products announced by the Hong Kong Securities and Futures Commission (SFC). As the world's first asset manager to launch single-stock leverage products for Samsung Electronics (May 2025) and SK hynix (October 2025), CSOP commands most of the leveraged ETF market in Hong Kong.

Previously, on July 24, the SFC announced that for leverage and inverse products whose capacity (the total size for which the issuer can actually source and maintain the intended exposure) may fluctuate significantly according to market conditions, it would move from daily fixed leverage ratios to a flexible leverage structure that allows for daily adjustments depending on circumstances.

Accordingly, issuers may now adjust the leverage ratio on a daily basis within the existing caps (2 times for leverage products and -2 times for inverse products). The following day's target leverage ratio must be posted daily after market close on the product's homepage and on the Hong Kong Exchanges (HKEX) website. Additionally, the product name must indicate the structured characteristics and the maximum allowable leverage ratio.

As for the rationale behind the adoption of this system, the Hong Kong financial authorities highlighted several factors: the rapid increase in single-stock leverage and inverse products since the beginning of the year; greater dependency on managing the underlying assets ecosystem; and heightened tracking difference risk from maintaining fixed leverage ratios. They explained that these new measures aim to mitigate related risks, improve investor understanding of the product nature, and enhance issuers' operational flexibility to foster sustainable market growth and strengthen investor protection according to market conditions.

As a result of these changes, the product name 'CSOP SK hynix Daily 2x Leverage Product' will become 'CSOP SK hynix Daily Maximum (MAX, 最多) 2x Leverage Product,' and 'CSOP Samsung Electronics Daily 2x Leverage Product' will be renamed to 'CSOP Samsung Electronics Daily Maximum 2x Leverage Product.'

The leverage ratio may fluctuate depending on market conditions. In normal circumstances, it will be maintained at 2x, but the ratio may be lowered to 1.5x, 1.1x, etc., within the established caps of up to ±2x, depending on the situation.

Some analysts have pointed out the risks that remain with this approach. Jin Young Kim, analyst at Kiwoom Securities, explained, "Leverage ratios are determined by market conditions and capacity constraints, which means they may be reduced at times that are unfavorable for investors. For example, if the leverage ratio is lowered from 2x just before a sharp increase in the underlying stock price, investors may miss out on potential returns they would have received at the original ratio. Additionally, even if the leverage ratio is lowered, the compounding effect caused by path dependency still applies."

Furthermore, in the flexible leverage structure, the ratio shown in the product name represents the upper limit (maximum leverage), not a fixed value. Therefore, investors must check the product homepage and HKEX website daily to know the actual leverage applied. Kim also noted, "There may be a discrepancy between the nominal leverage and actual exposure, and the predictability of the exposure in advance is reduced, which is something investors need to be aware of."

This content was produced with the assistance of AI translation services.