SK hynix 17largest drop in years; will leverage measures emerge? Outlook for the stock

7Month 13day KOSPI turned sharply lower, led by semiconductors. SK hynix recorded its biggest drop in 17 years, by far.

The direct blow behind the selloff is the disappearance of tailwinds related to ADRs (American Depositary Receipts, certificates of shares listed on overseas exchanges). Securities firms have been slashing earnings estimates and target prices in quick succession.

Yet if you look at how strong the semiconductor industry’s underlying fundamentals really are, the picture is different. Semiconductor exports in that month once again hit a record high at 112 billion dollars.

Total exports also increased by 53.9% year on year. It is a disconnect in which the industry is booming while stock prices have fallen to the bottom.

There are also claims that leveraged ETFs, which attracted individual investors and seek returns of 2to 3times the original index move, have increased volatility. When stock prices fall, these products have amplified the decline even more sharply.

Money flows are also moving in the fund market. Mirae Asset Life Insurance is drawing demand by launching a variable insurance fund that holds 3semiconductor ETFs from South Korea, the United States, and China.

The problem starts now.

• Price volatility centered on leveraged products has continued day after day.
• Financial authorities are coordinating measures related to leveraged ETFs.
• Pressure remains to revise earnings outlooks for securities firms that have lost ADR-related materials.

As regulators have stepped into the market, the content and timing of leveraged ETF measures will be the key variable determining the future direction of SK hynix's stock price.