SK Hynix (HXSCL), a South Korean memory-chip producer at the center of the artificial intelligence hardware supply chain, recorded a 15% plunge on Monday, forcing leveraged products tied to the company to sell billions of dollars of shares. The selling pressure appears to have accelerated a broader reassessment of AI valuations and contributed to a 25% decline in South Korea's Kospi over three weeks. Samsung Electronics (SSNLF), a South Korean electronics and memory-chip manufacturer, and SK Hynix account for more than half of the Kospi, suggesting that sharp movements in either stock could have an outsized impact on the broader market.
Goldman Sachs Group, a financial firm with an institutional sales and trading business, estimated that leveraged funds may have needed to sell about $5 billion of SK Hynix shares following Monday's decline to maintain their required exposure. That amount represented approximately 18% of the combined trading value in SK Hynix shares and stock futures during the session. More than a dozen leveraged exchange-traded products tracking SK Hynix and Samsung have fallen about 40% since their Seoul listings in May, while margin loans in South Korea peaked above 38 trillion won, or $25.4 billion, in June and stood at 34.8 trillion won as of Monday.
The same market structure also amplified Wednesday's rebound, when the Kospi rose 6.2% after SK Hynix's U.S.-traded depositary receipts gained 27%, encouraging foreign investors to purchase 2.3 trillion won, or $1.5 billion, of index members. South Korean President Lee Jae Myung described the market as unstable and asked the Financial Supervisory Service, the country's financial regulator, and the Korea Exchange, its securities-market operator, to prepare additional measures. Investors may view the episode as a warning that leveraged ETFs, margin borrowing and concentrated index exposure could increasingly drive volatility between Seoul and New York even when the underlying company fundamentals have not changed.