SK Hynix (HXSCL), a South Korean memory-chip company and a major beneficiary of the artificial intelligence boom, recovered from an early decline of as much as 9% to rise more than 2% in Seoul on Tuesday. The drop would have taken the stock's two-day loss beyond 20%, following a 9.3% overnight decline in its American depositary receipts as investors reduced exposure to AI hardware stocks amid concerns about excessive industry capacity. Samsung Electronics (SSNLF), a South Korean technology company and domestic peer of SK Hynix, posted modest gains, while the benchmark Kospi Index also moved sharply during the session. The rebound suggests investor sentiment toward Korea's AI-linked stocks remains highly sensitive as trading activity increasingly moves between Asian and U.S. markets.
CLSA Securities Korea, the Korean arm of the securities firm, said Korea has become an increasingly important indicator of global AI sentiment. Korean retail investors sold more than 2.5 trillion won, or $1.7 billion, of Kospi shares on Tuesday, reversing their recent pattern of buying market declines, while foreign investors purchased shares. SK Hynix and Samsung Electronics together account for more than half of the Kospi's weighting, increasing the influence of their share-price movements on the broader market. SK Hynix has also moved at least 5% in either direction during more than 50 trading sessions this year, highlighting the scale of volatility surrounding the stock. Further turbulence may emerge ahead of the company's July 23 quarterly earnings report after a local brokerage note suggested operating profit could come in below consensus expectations.
The market swings appear to have been intensified by leveraged investment products, short-term borrowing and forced selling. The ratio of forced liquidations involving shares purchased through short-term loans rose above 10% last week, compared with a six-month average of roughly 2.1%, while trading suspensions caused by steep market declines reached record levels. Leveraged exchange-traded funds linked to Korean chipmakers may be accelerating rebalancing trades, margin calls and forced liquidations when the underlying shares fall, prompting debate over tighter restrictions or possible delistings of some products. JPMorgan Private Bank, the private-banking business cited in the report, said leveraged ETFs may be increasing short-term swings without changing company fundamentals and could create opportunities when prices move too far in either direction. The firm also said current market valuations appear attractive compared with both emerging and developed markets, a view that investors may weigh against the risk of continued volatility.