South Korean chip stocks, which surged rapidly amid the AI boom, have now sharply declined, with risks spreading from the domestic market to the U.S. U.S. funds heavily invested in SK Hynix have suffered significant losses, while American retail investors who entered through ETFs and cross-border brokers are directly exposed to this sharp volatility.
Hedge funds incurred a monthly loss of approximately 67%.
According to The Wall Street Journal, the hedge fund Situational Awareness, managed by former OpenAI researcher Leopold Aschenbrenner, saw its portfolio value drop by approximately 67% in July due to heavy bets on South Korean semiconductor stocks. The report noted that the fund has liquidated most of its public market equity positions to repay loans.
The fund informed investors that its portfolio once neared an unacceptable level of permanent capital loss. Reuters, citing informed sources, reported that the U.S. Securities and Exchange Commission is investigating the timing of margin call triggers and communication records between the fund and its primary lending bank regarding leverage usage.
U.S. retail investors enter through DRAM ETFs
During this market cycle, the channels for U.S. investors to access South Korean semiconductor stocks significantly increased in May this year. Interactive Brokers became the first major U.S.-based brokerage to offer direct trading of South Korean stocks to its U.S. clients. Almost simultaneously, Roundhill Investments launched the DRAM ETF, which primarily invests in memory chip manufacturers.
In this ETF, Samsung Electronics and SK Hynix together account for nearly half of the fund's net asset value. The report states that, within weeks of its launch, the DRAM ETF attracted capital at a rate among the fastest in U.S. ETF history. Dave Mazza, CEO of Roundhill, said the product primarily reached individual investors through social media.
South Korea tightens regulations on leveraged products
In South Korea, retail investors have long accounted for 60% to 70% of daily trading volume on the KOSPI. With the launch of the first single-stock leveraged ETFs in May, individual investors gained the ability to amplify their bets on Samsung Electronics and SK Hynix, but also suffered greater losses when market conditions reversed.
Reports showed that the Korean stock market fell by approximately 40% over six weeks, wiping out about $2.5 trillion in market value. In response, regulators suspended approval of new single-stock leveraged products, tripled the mandatory cash margin requirement to approximately $21,000, and expanded mandatory online training for individual investors.
Additional information: As of the latest data, the Kospi has rebounded approximately 20% from its low, and the Kospi 200 Volatility Index has declined from 86.18 on July 30 to 56.76.