SK Hynix and Samsung Electronics drove KOSPI below 6,800 on July 13 as the index suffered its steepest intraday decline in two months. SK Hynix recorded a 15.37% drop, its largest single-day decline since listing in December 1996, shortly after successfully listing American Depositary Receipts (ADR) on NASDAQ on July 10. The decline was triggered by downward revisions to SK Hynix's Q2 earnings forecasts and liquidity shifts from Korean stocks to US-listed ADRs following UBS's July 7 recommendation to buy ADR and sell Korean shares. Single-stock leveraged ETFs tracking the two semiconductor giants amplified market volatility, falling 21.75-32.60% and pushing the VKOSPI volatility index up 6.63% to 83.33.
Foreign Investors Sold Korean Shares While Buying US ADRs
KOSPI fell to the 6,800 range for the first time in two months, erasing 546 trillion won in total market capitalization in a single trading day. Samsung Electronics (including preferred shares) and SK Hynix accounted for 431 trillion won of the decline. The two companies represent 52.85% of KOSPI's total market capitalization based on closing prices on July 13.
Foreign investors net sold over 3.1 trillion won of SK Hynix shares over two trading days (July 10 and 13). On NASDAQ, SK Hynix ADR closed its first trading day at $168.01, up 12.76% from the offering price of $149. UBS issued a report on July 7 (local time) recommending a "buy ADR, sell Korean stock" strategy ahead of the ADR listing. Kim Seok-hwan, researcher at Mirae Asset Securities, stated that "investors took profit on KOSPI while actively buying ADR on NASDAQ, creating divergent liquidity flows that pushed prices in opposite directions."
Korea Investment Securities Lowered SK Hynix Q2 Profit Estimate to 60.4 Trillion Won
Korea Investment Securities projected SK Hynix's Q2 operating profit at 60.4 trillion won, 7.08% below the securities industry consensus of 65 trillion won. The firm lowered its full-year operating profit estimate accordingly. The downward revision reflects SK Hynix's higher sales proportion of High Bandwidth Memory (HBM), which has shown slower price increases compared to DRAM and NAND flash memory.
FSS Governor Lee Chan-jin Met Asset Management CEOs on Leveraged ETF Issues
Financial Supervisory Service (FSS) Governor Lee Chan-jin met with asset management company CEOs at the Korea Financial Investment Association in Yeouido, Seoul, on July 13. Lee addressed tracking error management and false advertising issues related to single-stock leveraged ETFs. He stated that "since investors primarily rely on fund managers' advertisements when selecting ETFs, false or exaggerated advertising by fund managers is a very serious matter from an investor protection perspective." Financial authorities plan to introduce measures to address leveraged ETF volatility, which may include significantly raising the current margin requirement from 10 million won or strengthening investor education requirements.
Bloomberg and FT Analysts Issued Divergent Views on Semiconductor Stock Outlook
Financial Times reported on July 13 that "fund managers including Fidelity International and BlackRock are expressing concerns about whether the stock price rallies of companies like Taiwan's TSMC, South Korea's SK Hynix, and Samsung Electronics can continue." Bloomberg reported that "KOSPI valuation is lower than during the global financial crisis," indicating relative undervaluation. Jo Jun-ki, researcher at SK Securities, stated that "the domestic stock market is currently in a situation where investor sentiment determines the stock index" and "there is no change in the fundamental growth trajectory of semiconductor companies."
FAQ
What caused SK Hynix stocks to drop 15.37% on July 13?
SK Hynix stocks fell due to Korea Investment Securities lowering its Q2 operating profit estimate to 60.4 trillion won (7.08% below consensus) and liquidity shifts following UBS's July 7 recommendation for investors to buy NASDAQ-listed ADR while selling Korean shares. Foreign investors net sold over 3.1 trillion won of SK Hynix over two trading days.
How did SK Hynix ADR perform on NASDAQ compared to Korean stocks?
SK Hynix ADR closed its first NASDAQ trading day on July 10 at $168.01, up 12.76% from the offering price of $149. During the same period, Korean-listed SK Hynix shares declined as foreign investors shifted liquidity from KOSPI to the US-listed ADR following UBS's trading strategy recommendation issued on July 7.
What measures did FSS Governor Lee Chan-jin announce regarding leveraged ETFs?
FSS Governor Lee Chan-jin met with asset management CEOs on July 13 to address tracking error management and false advertising issues. Financial authorities plan to introduce measures that may include significantly raising the current 10 million won margin requirement or strengthening investor education requirements for single-stock leveraged ETFs.
