BlockBeats report, on August 3, after a significant correction in July, some foreign institutional investors believe the selling pressure driven by leveraged trading may be nearing an end, and are beginning to cover their short positions and reposition themselves in South Korea’s semiconductor stocks.
Last Friday, the Korean stock market rebounded sharply, as foreign investors ended their continuous net selling trend since the beginning of the year, buying approximately 7.2 trillion Korean won (about $5 billion) in Korean stocks in a single day—the highest net daily purchase on record. Meanwhile, Korean retail investors suffered significant losses as the market declined by about 40% from its June high.
JPMorgan data shows that the assets under management of leveraged ETFs targeting Samsung Electronics and SK Hynix have declined from approximately $50 billion in late June to around $17 billion last week. Analysts believe that the unwinding of leveraged ETF positions and deleveraging by hedge funds have largely been completed, and the previous sharp decline in the Korean market was primarily driven by capital liquidation rather than a deterioration in corporate fundamentals.
Steve Lawrence, Chief Investment Officer of Balfour Capital Group, stated that this correction is a "leverage event," not a profitability issue. He believes that Samsung Electronics and SK Hynix continue to benefit from the recovery in the memory chip cycle and increased investment in AI infrastructure, and the current stock price decline presents an undervalued opportunity.
JPMorgan Chase's analysis team stated that South Korean hedge funds have de-leveraged by approximately 90%, returning to a healthier level. Data shows that the average short position in the South Korean market has declined from a recent peak of about 5.3% to 4.3%.
However, market risks have not been fully eliminated. Although the South Korean KOSPI index rose a record 17.9% last Friday, it fell nearly 5% again on Monday, indicating that market volatility remains intense. The South Korean government has previously faced criticism for introducing single-stock leveraged ETFs, which led to massive losses among retail investors, and has since begun restricting high-leverage products.