AI Winners Unwind Sparks Panic In South Korea As SK Hynix Suffers Record Plunge, KOSPI Dumps

SK Hynix shares suffered their steepest decline on record in Seoul following Friday's blockbuster ADR debut in New York. The sell-off spread across South Korea's memory and data storage stocks, helping to drive the benchmark KOSPI down as much as 9% and triggering a 20-minute market-wide trading halt.

SK Hynix fell 15% to 1.845 million won on Monday, while its ADRs dropped nearly 9% in premarket trading to $153.50. The decline came as the chipmaker began trading under its ticker "SKHY" following last Friday's $26.5 billion U.S. listing, the largest share sale by a foreign company.

"Korea's SK Hynix shares are now down 15.6% on the day, for a 37% decline since the June 22 high. Still, the stock is 160% higher than at the start of the year. In part the drop in the Korea listing reflects a switch trade – selling the locally listed shares to buy the US ADRs, which launched on Friday. The stock is a darling of the retail investor, which can squeeze it in both directions," UBS analyst Simon Penn wrote in a note on Monday morning.

Goldman analyst Christopher Cha noted, "And today another -9% move..  Foreign and local institutional investors ended the day as net sellers, offloading $1.13 billion and $1.5 billion respectively. Local institutional selling was heavily concentrated in ETF-related liquidations, while foreign selling was almost entirely passive, with program trading accounting for $1.18 billion of the net outflows. Our High-Touch trading desk observed flows that mirrored this passive-heavy dynamic; institutional block activity was surprisingly muted despite the index's dramatic drop. We saw selective selling from momentum-driven hedge funds, while LOs remained quiet."

What changed last night was the buyer base: after months in which foreign outflows were absorbed by domestic demand, such as institutions and retail investors, foreign and local traders sold in tandem, accelerating the stock plunge. 

Here's additional commentary: "The weakness in memory seemed more flow-driven again (today joint net-selling by foreigners and local instos in Tech) with the ongoing consolidation in KOSPI. In SEC, foreigners and local instos jointly net sold -$129mn/-$564mn respectively, while retail investors bought the dip +$730mn." 

Meanwhile, popular leveraged ETFs that fueled the memory stock surge in Seoul plunged the most on record... 

UBS analyst Charles Lee commented on SK Hynix's technicals, saying, "Lastly, on the technical side, SK Hynix's 50-day moving average (KRW2.158 mn) has again failed to hold. The stock has been battling around this level while finding support at KRW2.0 mn throughout July, but it broke below that key support level on Monday."

More broadly, Justinus Steinhorst at UBS noted, "There's continued weakness in AI Winners, with the basket {UBXEAIW} down 1.4%. TSMC sales were in line but there is a big unwind in the Asia memory trade as SK Hynix had its worst day on record post Friday's ADR debut. ASML earnings on Wednesday will be the most important catalyst for the AI trade this week. UBS expects a strong print with a likely FY guidance upgrade."

Weakness spread across memory and computer storage stocks, with Samsung down 10%, SanDisk down 7%, Western Digital down 7%, and Micron down 5.6%.

The brunt of the sell-off was concentrated in South Korea, where the KOSPI closed nearly 9% lower, extending its correction from its June highs to more than 20%.

Selling spread Stateside to Nasdaq futures, down around 1%. 

UBS analyst Joe Dickinson noted that "recent price action across the AI trade continues to resemble a short-term 'peak narrative' unwind."

Circling back to our weekend note, "Carnage" in the Hyperscaler Bond Market: Did Goldman Just Pop the AI Debt Bubble, Goldman's head of credit strategy, Amanda Lyman, provides new insight into the growing stress across the hyperscaler and AI bond market.

Read the full report here.