Why Hong Kong’s SK Hynix fund stayed at full leverage amid market volatility

The chip fund maintained peak exposure as shares plunged, underscoring risks before regulators rolled out new flexible leverage rules

South Korean investor Carol Kim thought Hong Kong-based CSOP Asset Management’s new flexible leverage structure would cushion losses in its SK Hynix leveraged product, only to take a 77.2 per cent hit after the fund maintained its maximum exposure every day following the revised rules.

“I expected the flexible leverage structure to soften the blow, but it actually felt like it was dropping even harder than the product in South Korea,” the 32-year-old Seoul-based retail investor said.

Then, on August 3, the fund adjusted its structure. Instead of a fixed leverage model, it adopted a flexible ratio ranging from 1.1 times to two times. This was designed as a structural buffer, allowing fund managers to reduce exposure during sharp sell-offs and help mitigate portfolio volatility in extreme market downturns.

Even so, CSOP’s daily disclosures showed the fund maintained its maximum double-exposure limit every trading day for three weeks after the change.

In its first week under the new structure, the CSOP Hynix product fell 26.9 per cent as its share price dropped from HK$42.52 (US$5.42) to HK$31.06, while weekly turnover plunged 44.6 per cent week on week to HK$40.15 billion (US$5.12 billion).