SINGAPORE, July 29 (Reuters) – South Korea’s stock market plummeted for a second-straight session on Wednesday after earnings from chipmaker SK Hynix failed to allay investor fears about the durability of the AI trade.
The benchmark KOSPI index closed down about 6% on Wednesday after an almost 11% rout in the previous session as retail investors rushed to exit positions.
Here are some comments from analysts and investors:
PETER KIM, SENIOR MANAGING DIRECTOR, KB SECURITIES, SEOUL:
“The selloff is not driven by fundamental deterioration. This is a liquidity and sentiment-driven event, fuelled by the forced unwinding of single-stock leveraged ETFs across Korea, U.S., HK and UK, making the move sharper and more extreme than warranted by fundamentals.
“Sentiment remains fragile and retail-dominated, with fund flows and retail positioning currently the key market driver rather than earnings or fundamentals. The scale of leverage built up means the flush out will not complete within one or two weeks, and the price correction itself is generating more negative headlines, creating a self-reinforcing cycle that continues to overshadow any positives.”
GINA KIM, PORTFOLIO MANAGER FOR EMERGING MARKET EQUITIES, NORDEA ASSET MANAGEMENT, SINGAPORE:
“Given that the fundamental thesis remains intact, there does appear to be an irrational, panic-like element to the current selling, which has been concentrated in AI-related tech names.
“Some of this selling can be rationalised – de-risking ahead of the summer holidays, margin calls and similar flows – alongside recent newsflow on the sustainability of AI capex given rising debt levels and lower FCF at the CSPs, Chinese AI breakthroughs, and advances in chip manufacturing technology.”
“We have trimmed some of our larger tech stock exposure due to single stock limits rather than for fundamental reasons.”
GARY TAN, PORTFOLIO MANAGER AT ALLSPRING GLOBAL INVESTMENTS, SINGAPORE:
“SK Hynix delivered strong results, but in today’s AI market, strong is no longer enough. Investors were looking for additional catalysts, particularly around long-term agreements and shareholder returns, to support a memory sector that has become the epicentre of the AI trade. Without those signals, we expect volatility in AI-linked equities across Asia to persist as leveraged positions unwind and the market resets expectations.
FRANK BENZIMRA, HEAD OF ASIA EQUITY STRATEGY, SOCIETE GENERALE, HONG KONG:
“It’s certainly a very crowded trade which is being unwound. If you look at what is falling in the market, it has been the stocks in which you have the most leverage, and especially you have this single-stock leveraged ETFs, which had exploded during the months of May and June, and you have the top which had been reached at the end of June, and since that time you are seeing some deleveraging at work.
“It’s very difficult to say when will this selloff end, but at the moment, it’s definitely not the trade where we want to be.”
SHINGO IDE, CHIEF EQUITY STRATEGIST, NLI RESEARCH INSTITUTE, TOKYO:
“There was no fresh event that soured sentiment; the market is simply extending its recent trend. Japanese stocks may not have fully completed their correction, but they had fallen to levels where the adjustment could have run its course. For markets such as the KOSPI, the correction may still have further to go.
“Regarding Japanese equities, (halt in operations at some companies due to the earthquake), has been reflected. That said, rather than the impact of the earthquake, it feels more like a correction in a market that had become overheated — that factor seems stronger.”
FABIEN YIP, MARKET ANALYST, IG, SYDNEY:
“What we saw earlier in the month was that the foreign investors, a lot of them have taken profit, and that’s why we’ve seen a lot of selling pressure on the KOSPI as well as on the Korean won. While that has kind of tapered off in the past few days, it looks like the number of market participants in the market, because it’s so volatile, has kind of tapered off, so there are less people participating in the volatility. And given the volume is lower, it could potentially also drive prices wilder.
“In general, the clients that we are dealing with have been participating in the volatility, because a lot of these are shorter-term traders, so having that volatility in place is actually quite beneficial … definitely seeing a lot of interest around tech names in the past few weeks.”
WEE KHOON CHONG, APAC MACRO STRATEGIST, BNY, HONG KONG:
“Market has been very volatile for some time, in particular in Korea, as reflected in the KOSPI volatility. Today’s price action suggests that the leverage within Korean equity remains high and further unwind could be expected. We won’t say market is in a panic mode, more like a rotation into other sectors which has been largely out of sight for a while. Investors flows, based on BNY’s custodian data shows selling pressure concentrated in IT sectors while broad demand in most of the rest.”
PIERRE HOEBRECHTS, DEPUTY CIO AT EAST EAGLE ASSET MANAGEMENT, HONG KONG:
“The market gave a warning in June already, but no one listened. Very much a technical sell off. The amount of money that went into SK and Samsung was staggering. The number of accounts opened in Korea combined with the local leverage and very concentrated exposure, with the cherry on the cake being large 2x levered foreign ETF just made it an accident waiting to happen.”
“The selloff will stop once most of the margin accounts have been wiped out, which should be not far from here.”
(Reporting by Ankur Banerjee, Rae Wee, Summer Zhen, Satoshi Sugiyama and Nikita Jino; Editing by Lincoln Feast and Shri Navaratnam)
