SK hynix Falls 18% but Leveraged ETF Loses 48%: The Trap of Leveraged Products

*Editor's Note: 'AI PRISM' (Personalized Report & Insight Summarizing Media) is an "artificial intelligence (AI)-based customized news recommendation and summary service" developed with support from the Korea Press Foundation. It selects and provides six customized news items by reader type.

1. "Investors Should Stop Buying Leverage"...CEO Bae Jae-kyu Publicly Warns of ETF Risks

- Key Summary: Bae Jae-kyu, CEO of Korea Investment Management, publicly urged investors to refrain from investing in single-stock leveraged and inverse ETFs. In a performance analysis post on Facebook, he said investors should not invest in individual-stock leveraged and inverse 2x ETFs. In fact, while SK hynix shares fell 17.9%, the corresponding leveraged product plunged 47.5%, exceeding its theoretical value (35.8%). The inverse 2x product also recorded a loss differing from its theoretical return by 66.9 percentage points, revealing the divergence caused by the daily rebalancing structure.

2. Trading Value Tops 12 Trillion Won Even on First Day of Leverage Measures

- Key Summary: Investment enthusiasm shows little sign of cooling even on the first trading day after financial authorities announced supplementary measures for single-stock leveraged ETFs. The trading value of 16 Samsung Electronics (005930.KS) and SK hynix leveraged and inverse products totaled 12.3264 trillion won, showing little difference from the day the measures were announced. However, as the underlying assets Samsung Electronics and SK hynix fell 4.31% and 4.23% respectively, the leveraged products also plunged by up to around 9%, and the market capitalization of the 16 products shrank to 9.1174 trillion won. Kang Jin-hyuk, a researcher at Shinhan Investment, assessed that market changes were limited despite the system improvements.

3. KOSPI, KOSDAQ Trigger Sidecars for Second Day...Holding the 6,000 Line Is Key

- Key Summary: Domestic stock markets plunged for the second consecutive day, triggering sell sidecars in both the KOSPI and KOSDAQ markets. On the 20th, the KOSPI closed at 6,516.27, down 304.33 points (4.46%) from the previous trading day, while the KOSDAQ closed at 749.64, down 42.20 points (5.33%). With semiconductor weakness, geopolitical risks in the Middle East, and supply-demand instability overlapping, the number of sidecar triggers reached its highest level this year. Goldman Sachs suggested the possibility of further declines to the 6,500 line if the KOSPI's 6,800 line breaks, followed by the 6,100-6,000 line, while Kim Byoung-yeon, head of investment strategy at NH Investment & Securities (005940.KS), diagnosed the 6,000 line as a structural floor.

4. Tech Stocks Rattled by AI Overheating Concerns...Big Tech Earnings Are the Watershed

- Key Summary: As major U.S. technology stocks plunged, attention is on whether this week's Big Tech earnings announcements can quell concerns about AI overinvestment. The Philadelphia Semiconductor Index (SOX, an index of 30 semiconductor companies including Nvidia, AMD, and Intel) fell 10% last week, marking its largest weekly decline in one year and three months. The fact that the shadow debt (debt of special purpose entities not reflected on financial statements) of the five major hyperscalers—Alphabet, Microsoft, Amazon, Meta, and Oracle—reached $1.65 trillion, an eightfold increase in four years, is also cited as a burden. Big Tech earnings announcements, starting with Alphabet and Tesla on the 22nd and continuing through the end of this month, are expected to determine whether tech stocks rebound.

5. TSMC: "We Will Build 12 Sites Even if U.S. Fabs Cost 5 Times More"...Arizona Investment Confirmed at $265 Billion

- Key Summary: TSMC has confirmed its total Arizona investment at $265 billion (about 397.5 trillion won), building 10 wafer fabs, two advanced packaging facilities, and one research and development (R&D) center. Wendell Huang, TSMC's Chief Financial Officer (CFO), stressed that the company is witnessing structurally strong long-term demand and will not cede the market to competitors. Although initial margin dilution is inevitable as construction costs in the U.S. are 4-5 times higher than in Taiwan, the company explained the decision considers relationships with customers, given that 78% of its second-quarter revenue this year came from North America. TSMC is also accelerating the expansion of its 2-nanometer share in cutting-edge processes, with expectations that it will establish itself as a new growth driver from the third quarter.

6. SK hynix ADR Ranks 2nd in Korean Retail Net Buying...Clear Temperature Gap at Home and Abroad

- Key Summary: While SK hynix shares continue to correct domestically, buying is concentrated on its American Depositary Receipts (ADRs) listed in the U.S. From the 11th to the 17th of this month, the net buying settlement amount for SK hynix ADR (SKHY) was $520.38 million (about 769.923 billion won), ranking second in Korean retail net buying. The top net buy was the Direxion Daily Semiconductor Bull 3x ETF (SOXL), a 3x semiconductor leveraged product, with most of the top rankings filled by semiconductor-related stocks. SKHY surged 27.29% in a single day on the 14th of this month, recording a 51% premium to the underlying stock, which is interpreted as a bet on expectations of expanded liquidity and mid-to-long-term growth potential.