Samsung Earnings One Day Away, Leverage-ETF Volatility Rattles a Turbulent Week's Start

The KOSPI opened Monday under heavy foreign selling, falling about 2.2% to the 7,900 level, while the KOSDAQ dropped as much as 4% to around 830 points. Foreign investors sold across the board — cash, futures, calls and puts alike — offloading roughly 1 trillion won in the cash market and another 1 trillion won in futures. Institutions were also net sellers in cash, with only pension funds providing modest support through small net buying, though it remains unclear whether that will continue. The won, which had plunged more than 30 won last Friday, rebounded somewhat on the day.

Before the market opened, the hosts pointed to single-stock leverage ETFs as the main driver behind the recent surge in volatility. The products were originally introduced to defend the currency, absorb capital that would otherwise flow overseas, and reflect a maturing investor base, but unlike Hong Kong or US leverage products that are largely derivatives-based, Korea's version trades the underlying stock and futures simultaneously — a structure that, it turns out, makes it unusually easy to rattle the domestic market itself. As a result, the industry is now discussing steps such as gradually raising account margin requirements from the current 10 million won toward as much as 100 million won, tightening investor education, or even delisting existing products. Regulators — specifically the Capital Markets Special Committee — have reportedly already begun an inquiry into leverage ETFs.

The most intuitive gauge of volatility, the hosts said, is the daily trading range — the gap between a session's high and low. The average intraday swing in May and June exceeded 4 percentage points, a level with no real precedent in Korean market history. As of this broadcast, however, there was no clear sign yet that this range was narrowing.

Guest Shin Jung-ho, head of research at LS Securities, noted that while roughly 180 trillion won a year in foreign net selling of KOSPI shares is a factor behind the won's weakness, a weak won does not automatically mean falling stocks — in the first half of 2024, for instance, the won was weak yet the index rose as foreign buying concentrated in the semiconductor value chain. He pointed to global liquidity, measured as aggregate M2 across major economies, peaking in February and declining since, combined with simultaneously hawkish stances from the Bank of Korea, the Bank of Japan and the European Central Bank, as the backdrop for the recent foreign selling.

For the second half, Shin recommended keeping cash allocation at roughly 30% during this high-volatility phase to retain the flexibility to buy on dips and sell into rallies. Of the remaining equity allocation, he suggested splitting it evenly between AI-related semiconductor and electronics value-chain names and more defensive sectors such as shipbuilding, defense and financials. He characterized July and August as a conservative, wait-and-see stretch until earnings and the Fed's policy direction become clearer, but added that once KOSDAQ's tiering and delisting reforms take full effect, cash-rich but undervalued so-called 'bad stocks' could become activist-investor targets, opening up a fresh set of opportunities.

Attention is fixed on Samsung Electronics' preliminary second-quarter results, due around 7:30 a.m. Tuesday. The current brokerage consensus sits around 85 trillion won in operating profit, with individual estimates ranging widely from the low 80-trillion-won range up to 90 trillion won — a spread analysts attribute to differing assumptions about how much of the special bonus provision gets booked this quarter.

A report released the day before the announcement, from Meritz Securities analyst Kim Sun-woo, drew particular attention. Kim topped this year's rankings as the best semiconductor analyst and correctly called Samsung's first-quarter results, lending the report credibility. His estimate puts pre-provision profit in the Device Solutions (semiconductor) division alone at about 109.5 trillion won, with company-wide pre-provision operating profit near 110 trillion won — roughly double the 57 trillion won posted in the first quarter. Even after deducting about 19 trillion won in total provisions — roughly 13 trillion won for this quarter's special bonus plus a retroactive 5 trillion won from the first quarter — he still expects final operating profit of about 90 trillion won.

The hosts noted that credibility runs high given the report came out the day before the announcement from a top-ranked analyst with an accurate track record. Market expectations had already been running high, and a few brokerages had recently trimmed their estimates citing provision concerns — but this figure was described as a surprise large enough to make the whole 'were expectations high or low' debate moot. Samsung shares gained about 0.3% intraday to reclaim the 310,000-won level, partly reflecting this earnings optimism.

SK Hynix's ADR listing on the Nasdaq, set for this Friday, is another key variable. The listing is expected to raise about 45 trillion won for domestic chip investment; under relevant rules, the offering price will be set using the volume-weighted average of Korean closing prices over the three to five trading days before subscription, currently discussed around 2,555,000 won. SK Hynix shares fell about 4% on the day, briefly dipping below 2.3 million won intraday. Since the offering takes institutional subscriptions only, with no retail tranche, concerns emerged that the intensity of foreign and institutional selling over the coming days could directly affect how the offering price is set.

Starting Monday, Korea's won-dollar FX market moved to round-the-clock trading, running from Monday morning through Saturday dawn without a break. Previously, once the domestic session closed, speculative trading migrated to the offshore non-deliverable forward (NDF) market, where positions are settled purely on price difference without physical delivery — and that offshore activity would then feed directly into the following day's onshore rate. The move effectively extends the onshore session to 24 hours to dilute the outsized influence of that offshore speculative flow.

Coincidentally, the roughly 45 trillion won raised through SK Hynix's ADR listing this week will need to be converted into won for domestic chip investment, and that conversion demand was cited as a further source of support for the currency. Foreign media noted the extended hours could revive won carry trades, while cautioning that some volatility should be expected early on until participants' trading patterns become clear in this newly opened market. Since FX market accessibility was a key criterion in the debate over MSCI developed-market inclusion, the 24-hour opening could also work in Korea's favor in future reviews.

This Wednesday brings the first FOMC minutes released under the newly installed Fed chair. Given that the chair avoided giving explicit hints at the prior press conference, the tone and nuance of the closed-door discussion among committee members are expected to draw close market attention. Elsewhere this week, Korea's options expiration falls on Thursday, and Friday brings both the SK Hynix ADR listing and TSMC's June revenue release.

LS Securities' Shin Jung-ho attributed the won's recent weakness to the combination of roughly 180 trillion won a year in foreign net selling of KOSPI shares and a stronger dollar. He said dollar strength stems from lingering worry that the Fed could resume rate hikes if next week's inflation data comes in hotter than expected, even as recent employment data has softened somewhat. He also pointed to global liquidity — aggregate M2 — peaking in February and declining since, alongside simultaneously hawkish stances from the Bank of Korea, the Bank of Japan and the European Central Bank, as further pressure behind the won's weakness.

Reports indicate Canadian Prime Minister Mark Carney could announce the winning bidder for a submarine procurement program — 12 vessels worth an estimated 60 trillion won over several years — around 5 a.m. Korea time on the 7th. The timing, just ahead of the NATO summit on the 7th and 8th, has drawn attention to the backdrop of the announcement. Some reports also raise the possibility of a split order dividing the volume evenly with Germany.

At the NATO summit, discussions are expected to focus on converting expanded defense budgets — driven by longstanding US pressure on member states to lift defense spending toward 5% of GDP — into actual weapons production and joint procurement contracts.

The hosts noted that as a NATO member, Canada's defense procurement has historically stayed within a de facto league of NATO allies, so Korea even being a finalist for this project is itself a notable crack in that established order in the global defense market. They framed it as an extension of a trend already visible in Korean defense exports to Poland — tanks, missiles and more — that has quietly unsettled Europe's traditional defense powers. The key question heading into the NATO summit is whether Canada will favor Korea over ally Germany, or split the order between the two as a compromise.

Industry figure Eom Kyung-ah was cited as saying that even if Korea doesn't win this particular contract, Canada's unusually fast decision to place the order could itself accelerate submarine orders from other countries. Saudi Arabia, Greece, Morocco, Peru, Egypt, the Philippines and Indonesia were all named as countries currently awaiting submarine procurement decisions. Amid this optimism, Hanwha Ocean shares surged more than 10% at the open before paring gains, still closing the session up around 4%.

Presidential Chief of Staff Kang Hoon-sik said in an interview that the government is pursuing a new 'Future Response Fund,' financed by surplus corporate tax revenue generated by the semiconductor boom, to invest in power and water infrastructure for semiconductor clusters.

The context is that Korea's central government budget runs around 700 trillion won a year, with expected tax revenue budgeted in advance at the start of the year. Samsung Electronics alone is now expected to post second-quarter operating profit anywhere from around 90 trillion won up to as much as 110 trillion won, far exceeding original forecasts — and with semiconductor firms broadly outperforming, an unusually large surplus in corporate tax revenue is expected that ordinary budget planning never anticipated. The hosts explained that rather than folding this kind of extraordinary surplus into the general budget as usual, setting it aside for a designated purpose only is exactly what a 'fund' is for. Korea currently has some 60 to 70 such funds worth a combined 600 to 700 trillion won, and this new fund could end up rivaling that total on its own.

Kang also said the government would revisit its previously negative stance on new nuclear plant construction, and would discuss ways to shorten the typical seven-to-nine-year construction timeline. Nuclear-related stocks rose early in the session on the news but gave back most of those gains as the broader market weakened through the morning.