Domestic Stocks Plunge 7% Despite SK Hynix ADR Success as Leverage ETF Rules Stall

The KOSPI opened with gains of about 0.7% but reversed sharply in the afternoon, falling as much as 7% to trade in the low 6,900s. The KOSDAQ also declined roughly 3% to near 810 points. Foreigners sold about 1.8 trillion won on the KOSPI and 360 billion won on the KOSDAQ, with net selling also seen in futures. Institutions sold heavily through financial investment accounts, while pension funds bought a net 140 billion won.

By sector, Samsung Electronics fell about 8%, SK Hynix about 12%, and Samsung Electro-Mechanics about 17%, led by electronics. Hyundai Motor held up relatively well, down only 1.7%. Cosmetics names such as Kolmar Korea (+8%), Cosmax (+5%), and Caregen (+4%) bucked the trend, supported by strong July 1-10 export data showing continued K-beauty growth in the US and Europe.

The KOSPI's 120-day moving average sits around 6,500, leaving some room, but several near-term support levels broke in succession during the session. Advancers were limited to about 200 issues on the KOSPI and 220 on the KOSDAQ, reflecting broad-based selling pressure.

Panelists noted Korea's forward P/E stands near a record-low 6.4x on Bloomberg data, arguing that undervaluation is becoming more pronounced even as earnings rise while prices fall. However, they flagged that top-volume names are dominated by leveraged and inverse ETFs rather than underlying stocks, meaning fundamentals are not being properly reflected in price action.

Wall Street saw thin early trading last Friday as investors awaited the SK Hynix ADR listing, before gains accelerated into the close. The S&P 500 recovered to within about 0.5% of its all-time high, raising hopes of a fresh record if this earnings season delivers.

The Dow recently touched a record high, while the Nasdaq led gains as the Dow pulled back slightly, driving the broader index higher. Sector rotation between software and hardware, and between value and growth, is expected to give way to more stock-specific moves this week.

The Russell 2000 also held firm, while healthcare stocks — recent leaders — ceded some ground to AI-related names. US ETF assets under management hit a record high, pointing to continued inflows into large-cap tech, semiconductors, AI, and Korea-focused funds.

Still, a large share of Nasdaq 100 constituents remain in bear-market territory, down more than 20% from their highs, even as the headline index sits at elevated levels — underscoring lingering rotation risk beneath the surface. Retail buying has recently cooled, leaving large-cap tech to carry the rally.

SK Hynix's ADR began trading on Nasdaq under the ticker SKHY and closed its first session up roughly 12-13% from the offering price, near $168, after opening around $170 — a well-received debut. The Korea-listed shares, however, plunged about 11-12% the same day, moving in the opposite direction as trading-hour gaps and arbitrage constraints widened the premium between the two listings.

Chairman Chey Tae-won said in interviews that investment decisions are not timed to US election cycles, noting over $4 billion committed to advanced packaging in Indiana and potential joint ventures in US data centers and startups. He said long-term supply contract terms vary by customer and would not be standardized, and on stock splits said the company would consider one if the CFO requested it, with CEO Kwak Noh-jung (referred to as president) also suggesting it could be reviewed.

Panelists recalled Samsung Electronics' 50-for-1 split in 2018, when shares traded above 2.5 million won, which helped broaden retail ownership despite a poor semiconductor downcycle at the time. A similar split for SK Hynix could improve retail accessibility and liquidity.

Despite the ADR opening direct US access, capital flows out of Hong Kong-listed leveraged products tied to SK Hynix have not meaningfully slowed yet. Panelists noted the ADR represents only about 2.5% of total shares, making an extreme and lasting price gap between the two markets implausible, and characterized the simultaneous home-share selling and ADR buying as a temporary premium adjustment, with the ADR listing catalyst itself already priced in as of last Friday.

SK Hynix's US depositary receipts closed their debut session last Friday up roughly 12.7% from the $149 offering price, at $168. Shares had touched as high as $177 intraday before settling back, in what was seen as a successful launch.

That implies a premium of roughly 15% over the Korean-listed shares in won terms — comparable to the 15-20% premium TSMC's ADR has typically commanded over its Taiwan-listed shares. SK Group Chairman Chey Tae-won told Bloomberg TV that chip demand is growing exponentially with no signs of slowing.

Chey said the company plans to double production capacity within five years, but noted customers are already asking for five to six times current supply. SK Hynix CEO Kwak Noh-jung said the memory chip shortage could peak at its worst level in industry history in 2027 and persist beyond 2030.

Nvidia rose 4% last Friday, while Meta jumped 6% for a second straight day of sharp gains. AMD's price target was raised on strong server CPU market growth expectations; SanDisk rose while Micron slipped modestly as some demand shifted toward SK Hynix.

A notable point from SK Hynix's ADR prospectus was that final chip demand is shifting from individual PCs toward enterprise buyers running AI data centers. Consumer demand is volatile and hard to forecast, while enterprise data-center investment tends to be steadier, suggesting the semiconductor cycle's fundamental character may be changing from past patterns.

More than 25% of US GDP growth is now being generated by AI-related spending, according to recent data, suggesting the US economy is shifting from a consumption-driven to an investment-driven structure. Concerns over chip demand eased again last week, helping AI investor sentiment recover.

Microsoft is expected to invest about $65 billion while generating roughly $37 billion in AI-related revenue, making future revenue growth a key focus. Some companies, including Oracle, still face lingering concerns over returns relative to their investment.

Small-cap businesses built around AI applications are expanding, with professional, scientific, and technical services outpacing construction since the advent of generative AI. JPMorgan reportedly achieved higher average annual returns than traditional portfolios in tests using AI agents to adjust stock-bond allocations.

Separately, Apple reportedly filed suit against OpenAI over the weekend, alleging that OpenAI — which plans to launch an AI device as early as next February — recruited former Apple employees who misappropriated confidential hardware files and unreleased product information. Elon Musk took aim at Sam Altman over the dispute on social media.

The US-Iran conflict, which began in late February, entered its fifth month with a fresh escalation after Iran declared it would re-blockade the Strait of Hormuz. US Central Command said it expanded strikes beyond military air-defense systems and coastal radar sites to inland targets, and the news deepened the KOSPI's selloff sharply.

Unlike earlier strikes that targeted roughly 80 known military sites, the latest round included inland attacks, raising fears of broader escalation with no visible resolution roadmap. WTI crude rose about 4%, the US 10-year Treasury yield climbed to 4.58% and the 2-year to 4.23%. Nasdaq 100 futures fell about 0.9%, and Asian markets including the Nikkei, Hang Seng, and Shanghai Composite all declined.

Panelists said that unlike the war's early phase, when markets found comfort in expectations of a quick resolution, the current blockade-strike-reblockade cycle feels like an open-ended quagmire — a key difference driving heightened uncertainty. They noted the US also faces looming inflation data and munitions-supply concerns, compounding worries about a prolonged conflict.

Geopolitical tensions in the Middle East flared again over the weekend after reports that Iran attacked a merchant vessel with a missile and its Revolutionary Guard re-blockaded the Strait of Hormuz. US Central Command reportedly responded with a third round of airstrikes, while President Trump reaffirmed to Iran that the ceasefire was over.

US military officials, however, said the Strait of Hormuz remained open to all shipping, adding to confusion over the situation amid conflicting statements. WTI crude traded around $74 a barrel, up roughly 3.8% from the prior session.

Some investment banks described the situation as an "unstable peace," arguing the standoff is likely to calm quickly given that a spike in oil prices would burden President Trump ahead of the midterm elections. The US 10-year Treasury yield climbed back to 4.58%.

Meanwhile, roughly $26.5 billion raised through the SK Hynix ADR listing helped push the won below 1,500 per dollar, exceeding the $19.8 billion supplied under the 2020 US-Korea currency swap. The inflow comes as markets also watch this Wednesday's Bank of Korea rate decision, with a hike widely expected.

The overnight U.S. and global market brief above is compiled from 삼프로TV 오전 방송 (https://www.youtube.com/watch?v=qSVsQMK-gXU).

Policy chief Kim Yong-beom said this morning that supplementary measures for leveraged ETFs would be decided at a market situation review meeting, to be joined by the so-called F4 — the finance ministry, Financial Services Commission (FSC), Bank of Korea, and Financial Supervisory Service. Markets widely expect concrete measures to be announced at the FSC's presidential policy briefing next Wednesday, July 15. Separately, FSS Governor Lee Chan held a meeting with asset management CEOs on leveraged ETFs this morning.

Panelists cited the US Federal Reserve's overnight emergency meeting and next-day rate cut during Covid as an example of how speed is essential in asset-market policy response. They argued that endless deliberation while investor losses and volatility mount is unacceptable, and called for immediate interim steps such as trading halts or price-limit measures even before final policy is set.

Indeed, even as SK Hynix shares briefly rose this morning, capital flowed out of single-stock leveraged products while inverse products gained inflows — an unusual pattern panelists attributed to regulatory-announcement-driven panic selling among leveraged investors. They argued that repeated statements of 'under review' without action are themselves fueling further declines.

Data cited showed retail investors hold single-stock leveraged ETFs for an average of just three days and inverse ETFs for 1.5 days, reflecting highly speculative short-term trading, with average account sizes around 50 million won — a low entry bar that panelists said encourages reckless attempts to recoup losses during drawdowns.

This week features three days of public real-estate policy hearings — supply (Ministry of Land, Infrastructure and Transport), finance (FSC), and taxation (Ministry of Economy and Finance) — ahead of a presidential real-estate policy summit chaired by President Lee Jae-myung on the 23rd. President Lee posted on social media that key issues, including tax gaps between owner-occupied single-home owners and multi-home owners, treatment of ultra-high-value homes, and the relationship between holding and transaction taxes, would be disclosed in advance.

Ahead of this week's public real-estate hearings, it was argued that simple comparisons with the US and other countries cannot produce sound tax design. Korea's real estate market has four defining peculiarities that must be acknowledged first: an unusually high share of speculative and investment-purpose ownership concentrated in Seoul and the capital region (about 50% of new apartments in Gangnam are investment holdings), extreme regional price disparities, an outsized policy impact on the market, and a widespread public belief that property prices never fall.

On criticism that real-estate tax revenue equals about 3% of GDP, it was countered that this simply reflects Korea's globally unparalleled absolute property prices and capital gains, making raw comparisons meaningless. Similarly, high transaction tax burdens were said to merely reflect large realized gains rather than an excessive tax structure — a superficial comparison that misses the root cause.

The failure of holding taxes like the comprehensive real estate tax to stabilize prices was attributed to tax rates being too low to create real burden for investors, and to eroded policy credibility as investors came to expect eventual rollbacks or abolition — a self-fulfilling expectation that has repeatedly come true.

It was argued that new tax design should rest on three principles: curbing speculative demand, narrowing regional price gaps, and building policy credibility — with the key challenge being convincing markets that once set, the policy will not be easily reversed. This was linked to the broader goal of redirecting capital from speculation toward productive investment, with implications for equity markets as well.