AI Bubble Warnings Grow as BOE Reviews SK hynix, TSMC Exposure

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1. Concerns Over AI-Driven Plunge Spreading…Bank of England Probes IB Concentration in SK hynix, TSMC

- Key Summary: The Bank of England (BOE) has begun investigating global investment banks' holdings of Asian AI-related stocks. The move is interpreted as a step to prepare for the possibility that an AI-driven stock market plunge could spread into broader financial market risk, as investment has become concentrated in a small number of stocks such as SK hynix, TSMC, and Changxin Memory Technologies (CXMT). The Prudential Regulation Authority (PRA), an arm of the BOE, is also examining the prime brokerage business that investment banks provide to hedge funds, and is considering measures to require expanded liquid asset holdings if necessary. On this day, SK hynix shares fell more than 9%, while TSMC also dropped 3.51%, as Asian markets broadly wavered amid AI uncertainty.

2. ETF Divergence Amid Semiconductor Correction…Bond-Mixed Products Defend Against Losses

- Key Summary: During the correction in Samsung Electronics (005930) and SK hynix, the performance of domestic semiconductor ETFs is sharply diverging depending on investment approach. ETFs concentrated in leading semiconductor stocks posted losses of around 40% over the past month, while bond-mixed ETFs that also incorporated government bonds proved their defensive strength by cutting losses by about half. As a result, bond-mixed products such as the RISE Samsung Electronics SK hynix Bond Mixed 50 have seen net inflows of several hundred billion won over the past month. This is analyzed as reflecting investor demand to maintain the long-term growth potential of the semiconductor sector while reducing short-term volatility.

3. 75% of KOSPI Below PBR of 1…Undervalued Stocks Surge in Correction

- Key Summary: The share of KOSPI-listed companies with a price-to-book ratio (PBR) below 1 expanded to 75%, marking the year's high. While funds flowed into some large technology stocks such as semiconductors, other sectors continued to see share prices fall short of net asset value even as earnings improved. In fact, Hyundai Motor's (005380) PBR fell from 1.13 to 0.83 in a single month, and financial stocks such as Korea Investment Holdings (071050) (0.94) and Shinhan Financial Group (055550) (0.83) also remained at low levels. Meanwhile, the market has raised the outlook that a sector rotation could emerge once the decline in semiconductors, the leading stocks, stops.

4. 75% of Leverage Liquidated…56 Trillion Won in Losses Trapped in Samsung, hynix

- Key Summary: An analysis has emerged that leverage liquidation, cited as the main cause of the domestic stock market plunge, is proceeding slowly. JP Morgan estimated the liquidation rate of leveraged exchange-traded funds (ETFs) at 75%, while Citigroup Global Markets Securities assessed the liquidation rate of credit positions in the domestic stock market at 65%. In addition, as retail investors moved to make additional purchases even during the price decline, total losses related to leveraged ETFs were estimated at $38.7 billion (about 56 trillion won). Nevertheless, the balance of credit loans and unpaid brokerage receivables are trending upward again after hitting a low.

5. Signs of Overheating Revealed in Flow of Funds Trends

- Key Summary: In the flow of funds trends for the first quarter of 2026 released by the Bank of Korea, both household and corporate financial surpluses were found to have expanded simultaneously. The corporate financial surplus reached a record high of 20.8 trillion won, which is interpreted as reflecting both increased profits from the semiconductor boom and sluggish corporate investment. As a surge in the savings rate and a plunge in the investment rate occurred together, the gap between savings and investment widened, which is also leading to concerns over slowing growth potential and the high exchange rate phenomenon. In particular, the financial interrelations ratio, which refers to the ratio of financial assets to real assets, entered the overheating zone for the first time since 2022, sending a warning signal to investors.

6. CXMT Races Ahead…But It's a Pie in the Sky for Korean Investors

- Key Summary: Changxin Memory Technologies (CXMT), China's largest DRAM company, surged 465.8% after listing on Shanghai's STAR Market, rising to the top of China's A-share market capitalization ranking. However, Korean investors have limited investment routes to the Chinese mainland market, and related exchange-traded funds (ETFs) cannot hold CXMT until it is incorporated into an index. That said, it has been confirmed that some public funds holding Qualified Foreign Institutional Investor (QFII) status have been able to trade CXMT since immediately after its listing. Securities analysts have raised the possibility that if CXMT meets early inclusion requirements, it could be incorporated into related ETFs as early as the September rebalancing.