The South Korean stock market experienced another 'Black Monday' as the KOSPI index fell nearly 9%, dropping below the 7000 mark for the first time in over two months. The KOSDAQ also fell below 800. Analysts attribute the market crash to a combination of weakened investor sentiment centered around semiconductors and deteriorating supply-demand conditions.
On July 13, prior to the market opening, there was optimism regarding a potential rise in the stock market due to the listing of SK Hynix's American Depositary Receipts (ADRs), driven by expectations of a so-called 'reverse kimchi premium.' On its first day of trading on the Nasdaq, SK Hynix saw a double-digit increase, indicating strong interest from global investors. However, the reality was starkly different, as SK Hynix's stock price plummeted by 15.37% by the end of the trading day. Analysts suggested that this decline was due to the exhaustion of positive sentiment surrounding the ADR listing, as much of the anticipated gains had already been factored into the stock price, leading to a wave of profit-taking.
Concerns about a potential peak in the semiconductor sector also contributed to the decline in investor sentiment. The semiconductor industry now accounts for over 60% of the KOSPI's market capitalization, and as the sector faltered, the overall index suffered. Korea Investment & Securities projected that SK Hynix's second-quarter operating profit would fall short of market expectations, citing lower-than-expected average selling price increases and the anticipated impact of next-generation HBM4 production starting in the third quarter. Some investors interpreted this as a sign of slowing growth in AI memory, further fueling peak concerns.
Another factor exacerbating the market decline was the resurgence of 'Middle East risk.' Over the weekend, tensions escalated between the U.S. and Iran over the Strait of Hormuz, leading to a rapid spread of risk-averse sentiment. According to Bloomberg, Brent crude futures for September rose by 4.26% to $79.25 per barrel, while West Texas Intermediate (WTI) futures for August increased by 4.34% to $74.51 per barrel. However, analysts believe the impact of this factor was limited. Han Ji-young, a researcher at Kiwoom Securities, noted that despite the initial excitement surrounding SK Hynix's ADR listing, concerns about a peak in the memory market persisted, causing increased volatility in semiconductor stocks and heightened sensitivity to negative news and reports.
Lastly, a supply-demand cycle, referred to as the 'Wag the Dog' phenomenon, amplified the market's decline. Market participants observed that derivatives and supply-demand factors, such as futures, leveraged ETFs, and margin trading, increased volatility in the spot market, further deepening the losses. As semiconductor stocks fell, investor sentiment weakened, leading to liquidations of leveraged ETFs and forced selling, which in turn triggered program selling and foreign futures selling, creating a vicious cycle that exacerbated the index's decline. Lee Kyung-min, a researcher at Daishin Securities, stated that the recent drop in semiconductor stocks resulted from a combination of narratives surrounding the AI industry, valuation corrections, and leveraged liquidations, leading to a more significant decline in the domestic market compared to global markets. Kim Seok-hwan, a researcher at Mirae Asset Securities, added that the sharp drop in SK Hynix's stock was more a result of the conclusion of the ADR listing event and profit expectations being priced in, rather than a direct reflection of a slowdown in the semiconductor market or profit outlook, emphasizing the need to monitor the preliminary second-quarter results scheduled for July 29 and guidance on capital expenditures from AI hyperscalers.
* This article has been translated by AI.
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