At least nine leveraged exchange-traded funds (ETFs) tied to the stock of Japanese NAND flash memory maker Kioxia are set to list in the United States. Because it would be the first single-stock leveraged ETF for a Japanese company, concerns are emerging that Kioxia's stock volatility could increase further.
According to Bloomberg on the 27th, U.S. asset managers including Corgi Strategies, GraniteShares, and Tuttle Capital are pushing to launch leveraged ETFs based on Kioxia shares and American depositary receipts (ADRs) as underlying assets. Among them, the product from Tuttle Capital is expected to list as early as next month.
Kioxia, Japan's top semiconductor stock, is cited as the most volatile among major Japanese stocks. Kioxia's stock soared to 112,700 yen on the Tokyo Stock Exchange early last month, making it Japan's largest company by market capitalization. But as concerns over excessive AI investment grew, it fell to 52,500 yen as of the morning of the 27th. That means the stock has plunged 53.4% from its high in less than two months.
The reason leveraged ETF products are listing in the United States rather than Japan is due to regulations in Japan. Under the current system, single-stock leveraged ETFs do not meet diversified investment requirements and are not permitted for public listing in Japan.
"There are many interesting Japanese companies that U.S. investors want access to," Tuttle Capital CEO Matthew Tuttle said. "Japan will be the next growth market for single-stock leveraged ETFs."
Concerns Voiced Over "Following KOSPI's Fate"
Some warn that Kioxia leveraged ETFs could further amplify the volatility of the underlying stock. Andrew Jackson, head of Japan equity strategy at Ortus Advisors, pointed out, "As recently seen in Korea, leveraged ETFs distort normal market mechanisms and significantly expand volatility." He said, "In particular, they can further amplify the overheating of AI-related stocks, creating a very difficult investment environment for long-term investors."
In fact, in Korea, single-stock leveraged ETFs tracking Samsung Electronics and SK hynix surged, increasing volatility, and financial authorities halted the listing of new single-stock leveraged ETFs, Bloomberg reported.
Bloomberg also reported that due to recent sharp swings in AI semiconductor stocks, KOSPI's volatility exceeds 75% on an annualized basis, while Japan's Nikkei 225 index stands at 37% and the U.S. S&P 500 at 13%. KOSPI fell 28.5% in one month, from an intraday high of 9,114 points on June 21 to 6,516 points on July 20.
Meanwhile, Wall Street remains positive about Kioxia's medium- to long-term outlook. Based on Bloomberg's compilation, analysts' average 12-month target price is more than 110% higher than the current stock price.
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