South Korea’s stock market has experienced a dramatic boom and bust this summer, with the benchmark Kospi doubling in the first half of the year before plunging in late July. A key driver was the growing popularity of leveraged single-stock exchange-traded funds (ETFs), which use derivatives to magnify movements in companies such as Samsung Electronics and SK Hynix. While leverage amplified gains during the rally, it also intensified losses when markets turned, triggering margin calls and forcing investors to sell. Korea’s experience highlights how financial innovation can increase volatility when leverage becomes widespread among retail investors.

The problem extends beyond South Korea. ETFs were originally designed as relatively simple, low-cost vehicles providing diversified exposure to markets, but the industry has increasingly developed products offering leveraged, inverse and single-stock strategies. More than 1,000 ETFs have launched globally this year, with almost a quarter being leveraged single-stock funds. These products can produce significant losses and, because many rebalance daily, their long-term performance can differ substantially from what investors might expect. Their growing popularity therefore risks blurring the distinction between investing and speculation, particularly among inexperienced retail investors.

South Korea’s response offers a potential blueprint for regulators elsewhere. Authorities now require investors to complete educational courses before purchasing single-stock funds, while stronger disclosure requirements could help investors understand the risks involved. However, the issue extends beyond individual investors. Regulators should also consider how widespread leverage could amplify market-wide stress, particularly when retail participation is high. Korea’s experience demonstrates that financial innovation can create systemic vulnerabilities when products designed to magnify returns become widespread. As leveraged ETFs continue to expand globally, regulators may need to ensure that the pursuit of higher returns does not come at the cost of greater financial instability.

- Muthu Ramanathan

Nvidia’s disclosure that it owns nearly 123mn shares in SpaceX, worth around $21bn at the end of June, highlights how deeply the chipmaker is becoming financially intertwined with the companies driving the artificial intelligence boom. The stake stems from Nvidia’s investment in xAI, completed in January, shortly before Elon Musk combined the AI laboratory with SpaceX. Although SpaceX’s share price has since fallen, Nvidia’s holding would still be worth roughly $17bn. The investment demonstrates how Nvidia is using its enormous financial strength to secure relationships across the AI ecosystem.

The relationship is particularly significant because SpaceX is also one of Nvidia’s customers. Musk said last week that SpaceX had chosen Nvidia exclusively for its data centres, citing the company’s Vera Rubin architecture. Nvidia has committed more than $100bn to AI companies over the past two years, including investments in cloud computing and AI start-ups. It has also invested in Cursor, the coding company recently acquired by SpaceX. This creates a powerful feedback loop: Nvidia provides the technology and capital needed to expand AI infrastructure, while its customers generate demand for Nvidia’s chips.

This strategy illustrates how Nvidia is moving beyond being a semiconductor supplier towards becoming a financial force within the AI industry. The company is reportedly helping arrange more than $500bn of financing for its customers through major investors, while potentially guaranteeing loans backed by its own chips. Such relationships can accelerate AI infrastructure investment, but they also create greater financial interconnectedness across the sector. As companies increasingly invest in, finance and purchase from one another, Nvidia’s success becomes tied not only to chip demand, but to the financial health and expansion of the entire AI ecosystem.

- Neev Dave

Europe’s increasingly severe heatwaves are beginning to show up in corporate earnings, signalling that extreme weather is moving from an environmental concern to a commercial one. Terms linked to extreme heat, drought and wildfires appeared on a record one in ten earnings calls among European companies worth more than $1bn, according to AlphaSense. For some businesses, hotter weather is creating an unexpected boost in demand: Groupe SEB sold 30% more fans in Europe in June, while Beiersdorf recorded its strongest-ever month for sun protection sales. Pool, air-conditioning and groundwater pump manufacturers have similarly benefited as consumers and businesses adapt to rising temperatures.

However, the gains are uneven, as extreme heat can simultaneously disrupt operations and raise costs. Construction workers have been forced to stop working in 35°C temperatures, while Greggs has adapted its product range after hot weather previously damaged sales. Drax warned that lower rainfall could reduce hydropower generation, while nursing home provider Clariane is accelerating €10mn of investment in air conditioning after seeing a 15% increase in short stays as families sought safer environments for elderly relatives. The result is a growing divide between companies that benefit from adaptation and those exposed to physical disruption.

The more significant question for investors is whether these conditions represent temporary volatility or a structural shift in European demand. Some executives, including those at Engie and Drax, believe hotter and less predictable summers are becoming the “new reality”, encouraging companies to invest in climate adaptation and redesign their products and operations. Others, such as H&M and Ryanair, remain sceptical that one unusually hot summer warrants major changes. For investors, however, the increasing frequency of extreme-weather references suggests climate risk is becoming financially material, with companies’ ability to adapt potentially emerging as an increasingly important determinant of long-term competitiveness.

- Shrish Yalamarti

Until next time,

The Long and Short

Markets, Made Sense