Foreign Capital Returns to South Korean Stock Market, Buying Samsung and SK Hynix

On August 3, after a significant adjustment in July, some foreign institutions in the South Korean stock market believe that the sell-off triggered by leveraged trading may be nearing its end. They have begun to cover short positions and reallocate to South Korean chip stocks. Last Friday, the South Korean stock market rebounded sharply, with foreign investors buying approximately 7.2 trillion won (about 5 billion USD) in a single day, setting a record for the highest net purchase in a single day. Meanwhile, South Korean retail investors suffered significant losses as the market dropped about 40% from its June peak. According to data from JPMorgan, the asset size of leveraged ETFs targeting Samsung Electronics and SK Hynix has decreased from about 50 billion USD in late June to around 17 billion USD last week. Analysts believe that the unwinding of leveraged ETFs and the deleveraging of hedge funds have largely been completed, and the sharp market decline is more due to capital liquidation rather than a deterioration in corporate fundamentals. Steve Lawrence, Chief Investment Officer of Balfour Capital Group, stated that this round of adjustment is a "leveraged event" and not a profit issue. Samsung Electronics and SK Hynix continue to benefit from the recovery of the memory chip cycle and the growth of investments in artificial intelligence infrastructure, and the current drop in stock prices presents a buying opportunity. JPMorgan's analysis team noted that the degree of deleveraging among South Korean hedge funds has reached about 90%, with the average short position in the market dropping from a recent peak of about 5.3% to 4.3%. However, market risks have not been completely eliminated. The KOSPI index in South Korea rose a record 17.9% last Friday, but fell nearly 5% again on Monday, indicating that market volatility remains high.

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