SK Hynix slides more than 20% in two days as AI trade unravels

(July 14): SK Hynix Inc extended its brutal sell-off in Seoul on Tuesday, taking its two-day slump to more than 20% as a rout in global artificial intelligence (AI) hardware stocks fuelled fresh concerns that this year’s blockbuster rally in chipmakers had run too far, too fast. The South Korean memory giant fell as much as 9% on the Korea Exchange following a record 15% tumble on Monday. The benchmark Kospi Index dropped as much as 5.3%. Local peer Samsung Electronics Co fluctuated. The latest leg lower came as investors continued to dump tech hardware stocks globally, amid mounting concerns over excessive capacity in the AI sphere. For SK Hynix, whose shares have been among the world’s biggest winners this year, the sharp swings also underscore an unusually large amount of leveraged bets tied to the stock. Its new US listing may amplify volatility as trading sentiment ricochets between Seoul and Wall Street. “Korea has become an AI barometer,” said Jongmin Shim, an analyst at CLSA Securities Korea. “In the past, traders used to look at the Philadelphia Semiconductor Index or Nasdaq and project what Korean markets will do. Now it’s the other way around. Korea has increasingly become more impactful.” Reversing their recent trend of dip-buying, South Korean retail investors sold more than 2.5 trillion won (US$1.7 billion or RM6.9 billion) worth of Kospi shares on Tuesday, while foreign investors bought. Volatility has gripped the Kospi and its two heavyweights, SK Hynix and Samsung Electronics, which together account for more than half the index’s weighting. SK Hynix alone has swung at least 5% in both directions during more than 50 sessions this year, Bloomberg -compiled data showed. Shares may see further turbulence as its quarterly earnings report approaches on July 23. The Monday sell-off was partly fuelled by a local brokerage note saying that operating profit may fall below the consensus. The ratio of forced liquidation for shares purchased on short-term loans jumped to above 10% last week, from around a six-month average of 2.1%, according to the data from the Korea Financial Investment Association. Trading suspensions triggered by sharp losses in the local market have hit record levels, fuelled in part by the popularity of leveraged exchange‐traded funds (ETFs) tied to the nation’s chipmakers and the rebalancing trades those products require. Analysts have repeatedly sounded alarms that SK Hynix’s US debut, along with such ETFs, could spread volatility onto the global stage. With a “massive portion” of the retail crowd utilising leveraged vehicles, the market lacked any structural buffer, said Anna Fung, a senior analyst at Futu Securities in Hong Kong. “When the underlying semiconductor stocks ticked downward, it triggered an immediate, cascading wave of margin calls and forced liquidations, turning a standard market correction into a violent, mechanical rout.” Debates have intensified in South Korea over imposing stricter curbs, or even delisting, some of the leveraged products. On Monday, the chief of South Korea’s financial watchdog urged asset managers to take greater responsibility for ETFs. “Leveraged ETFs may be amplifying near-term swings without impacting fundamentals, increasing the risk of over-shoots on both the upside and downside, which is where opportunities can emerge,” said Cameron Chui, an equity strategist at JPMorgan Private Bank. “Overall, the current market valuation looks quite attractive relative to both emerging market and developed markets.” Uploaded by Tham Yek Lee