Attention is turning to shifts in supply and demand for South Korean semiconductor materials, parts and equipment stocks ahead of scheduled rebalancing by chip exchange-traded funds. As the funds trim their holdings of Samsung Electronics (005930.KS) to match periodic changes in their underlying indexes, some equipment and materials names are expected to draw substantial buying demand.
Seven semiconductor ETFs facing index changes this month held a combined 18.94 trillion won ($13.3 billion) in assets under management as of the 2nd, according to the Korea Exchange on the 5th. TIGER Semiconductor TOP10 accounted for 10.6 trillion won and SOL AI Semiconductor TOP2+ for 6.02 trillion won, making up most of the total. Rebalancing trades to reflect the index changes are expected to cluster on the 8th, which falls on options expiration day.
The latest periodic change is expected to reduce the weighting of Samsung Electronics while raising that of other chip stocks. In TIGER Semiconductor TOP10, Samsung Electronics made up 26.98% as of the 2nd, exceeding the 25% per-stock cap by 1.98 percentage points. Based on current assets, a simple calculation suggests the fund would need to cut about 209.8 billion won to bring the weighting down to 25%. Samsung Electronics accounted for 24.67% of SOL AI Semiconductor TOP2+ and 24.06% of TIGER Semiconductor TOP10 Leverage, both below the cap.
SK hynix (000660.KS) sits below the per-stock cap in most major ETFs, leaving room to absorb the money freed up by the reduction in Samsung Electronics, analysts said. Samsung Securities (016360.KS) estimated buying demand of about 90 billion won for SK hynix and about 80 billion won for SK Square (402340.KS). Hanmi Semiconductor (042700.KS), Jusung Engineering (036930.KS), Isu Petasys and Wonik IPS (240810.KS) each face demand of roughly 20 billion won. Measured against average daily trading value over the past 20 sessions, that amounts to 27.5% for Isu Petasys, 14.8% for Wonik IPS, 14.7% for SK Square, 12.6% for Hanmi Semiconductor and 7.2% for Jusung Engineering. For SK hynix, the figure was just 1.6%. That means the impact on supply and demand could be most pronounced among mid-cap stocks, where the trading volume is large relative to liquidity.
Whether index constituents are swapped is another variable. The underlying indexes of the ETFs facing October changes are mostly custom benchmarks designed for specific products by providers such as FnGuide, iSelects and NICE. Unlike broad market indexes, these benchmarks sometimes do not disclose periodic changes in advance, making it difficult to identify additions and deletions beforehand. Samsung Electro-Mechanics (009150.KS) is currently absent from the FnGuide Semiconductor TOP10 Index, as is DB HiTek (000990.KS) from the FnGuide AI Semiconductor TOP2+ Index, leaving room for actual flows to differ depending on whether they are newly added.
Brokerages said rebalancing demand could provide further upside given the sharp recent gains in equipment and materials shares, though some expect a pullback once the periodic changes are completed. Over the past month, Jusung Engineering has risen 37.0%, Hanmi Semiconductor 26.5%, Wonik IPS 25.6% and Isu Petasys 9.1%. "Because the rebalancing of these ETFs overlaps with options expiration day and is therefore concentrated, investors need to watch for greater price volatility from clashing flows in the stock market," said Jun Kyun, an analyst at Samsung Securities.
