Hynix is still adjusting today, and the South Korean stock market has triggered circuit breakers for two consecutive days. Why the sharp drop? Looking at the timeline: 1. Clues appeared last Friday. Following Nvidia's earnings report on Thursday, the stock price experienced a "sell the news" moment, and the entire semiconductor sector saw a correction on Friday. When discussing EWY at the time, we also mentioned signs of a market correction after the market had fully priced in memory. Over the weekend, we also saw news that foreign funds net sold 6.8 trillion won of the South Korean stock index on February 27th.
2. Then there's the direct impact of the Iranian situation. South Korea relies almost entirely on imported oil (with a very high proportion from the Middle East). Soaring oil prices directly lead to imported inflation, and the deteriorating terms of trade will also significantly increase manufacturing/export costs.
Previously, whenever the Middle East situation escalated, the South Korean stock market was the first to be affected, becoming the "most vulnerable high-beta market," with large-scale foreign capital withdrawals (net sales of trillions of won in a single day), directly pushing up volatility.
3. Of course, this is also highly correlated with the characteristics of the South Korean stock market.
The South Korean stock market is highly sensitive to global geopolitical conflicts and liquidity changes due to several factors, including a high concentration of constituent stocks (semiconductors, finance, automobiles, etc., dominated by a few sectors), a high proportion of retail investors, strong speculative tendencies among South Koreans leading to emotional trading, and a significant reliance on foreign capital.
Furthermore, the South Korean stock market mechanism has relatively low thresholds for triggering circuit breakers: a 5% drop triggers a sidecar (temporary suspension/program trading halt), and an 8% drop triggers a full suspension. In contrast, the US stock market triggers a circuit breaker at a 7% drop.
Of course, as discussed last Friday, the pullback in WEY (a Chinese stock market) provided an opportunity to wait for the correction to bottom out. Personally, I believe the root cause of the correction is simply a consolidation after the market had reached its peak, compounded by the potential for a significant increase in energy costs due to geopolitical conflicts over the weekend. This has led to valuation adjustments in semiconductor stocks, but it's not a major turning point in the trend.
As mentioned last week when discussing Nvidia's earnings report, Nvidia itself admitted that "cost pressures" stemmed from HBM (Hardware Manufacturing). This means that AI needs not only more computing chips but also more, more expensive, and more difficult-to-scale storage. Over the foreseeable 26 years, major tech companies will continue to spend capital, putting us on the side that "it hasn't peaked yet," but we need to closely monitor evidence regarding budgets, orders, and guidance.
The core competition in the storage industry has shifted from production capacity to cutting-edge technological innovation (such as HBM4 and HAMR) and a stable high-end supply chain. HBM is highly concentrated, essentially a two-horse race between SK Hynix and Samsung, with Micron as the third. Therefore, unless we see signs that major tech companies' capital spending has peaked and slowed, key links in the computing power supply chain will still have opportunities after adjustments.
Next, we need to watch the development of the situation in Iran. Again, on Monday, we need to pay attention to Micron's earnings report on March 18th, and the subsequent quarterly earnings reports of major tech companies, looking at their disclosed AI revenue, cloud growth, and capex ROI. If a clear signal emerges that "AI has started to make money" (rather than just burning money), the market will shift from "skepticism" to "verification." twitter.com/qinbafrank/status/...
