The iShares MSCI South Korea ETF (EWY) is experiencing significant outflows and a nearly 20% drop from its peak this year, driven by the unwinding of leveraged positions in major South Korean chip companies like Samsung Electronics and SK Hynix. This trend is exacerbated by new regulatory measures aimed at curbing leveraged trading, despite strong financial performance from the underlying companies.
The EWY ETF is facing substantial pressure due to a combination of factors. Firstly, the unwinding of leveraged positions in key South Korean chipmakers, primarily Samsung Electronics and SK Hynix, is leading to significant selling pressure. This is further compounded by new, more stringent regulatory measures from South Korea's financial regulator, making leveraged trading more cumbersome and discouraging retail participation. While Samsung and SK Hynix have reported strong financial results and announced share buybacks, the market is currently prioritizing the deleveraging trend and regulatory headwinds. This presents a short-term negative outlook for EWY and its underlying components, but could offer a long-term opportunity if the fundamental strength of these companies reasserts itself after the deleveraging cycle.