Korean semiconductor stocks recorded steep declines in July, with the KRX SK Hynix index falling 33.62% this month and the KRX Semiconductor index dropping 30.12%, according to Korea Exchange data released July 27. The decline was driven by structural reversal of leverage ETF inflows, margin trading positions, and foreign investor selling that had propelled first-half gains. Analysts view the downturn as a natural correction after the KRX Semiconductor index surged 181.81% in the first half, with profit growth rate deceleration expected but the profit cycle itself continuing through year-end.
KRX Semiconductor Index Records 30% July Decline
Korea Exchange data showed the KRX SK Hynix index posted the lowest return among 36 KRX indices this month, falling 33.62%. Other semiconductor-heavy indices recorded similar declines: KRX Information Technology fell 30.52%, KRX 300 Information Technology dropped 30.2%, KRX Semiconductor declined 30.12%, and KRX Samsung Electronics fell 25.30%. The broader KOSPI and KOSDAQ indices fell 21.07% and 18.33% respectively during the same period.
Leverage ETF Outflows and Margin Trading Reverse First-Half Inflows
Lee Jae-won, researcher at Yuanta Securities, stated that first-half concentration in semiconductor and large-cap stocks was rational given profit weight and earnings visibility, but the rise was implemented through individual investors' leverage ETF purchases, credit positions, and foreign large-cap selling. Lee noted that after the price decline, the same supply-demand structure operated in reverse.
The KRX Semiconductor index had risen 181.81% in the first half of the year before the July correction.
Analysts Cite Year-End as Profit Margin Peak Timing
Analysts identified year-end as the likely peak of the semiconductor profit cycle, with profit growth rates expected to decelerate rather than profits themselves declining. Lee Eun-taek, researcher at KB Securities, stated that one reason for the recent market correction is the slowdown in profit growth speed, which is partly a valid concern. Lee explained that in phases where profits surge rapidly like now, base effects work strongly, and if the semiconductor super-cycle started after July last year, it is natural for this year's profit growth rate to peak.
Lee stated that according to analyst estimates, Q4 will be the peak for operating profit margins. Lee noted that Micron recorded an 80.4% operating profit margin in Q2 this year and provided Q3 total margin guidance of 86%, suggesting Q3 operating profit margin could rise to around 82%.
Lee assessed that recent semiconductor order and inventory indicators show slight declines but the possibility of entering a meaningful downward trend does not appear large. Lee stated that economic indicators will likely show a Goldilocks flow — neither too hot nor too cold — for the time being, and emphasized the need to confirm whether operating profit margins and macro leading indicators decline together.
FAQ
Q: What caused Korean semiconductor stocks to fall 30% in July?
A: The decline was driven by structural reversal of leverage ETF inflows, margin trading positions, and foreign investor selling that had propelled first-half gains, according to Yuanta Securities researcher Lee Jae-won.
Q: When do analysts expect the semiconductor profit cycle to peak?
A: Analysts identify year-end as the likely peak timing, with KB Securities researcher Lee Eun-taek stating that Q4 will be the peak for operating profit margins according to analyst estimates.
Q: How much did the KRX Semiconductor index rise before the July correction?
A: The KRX Semiconductor index surged 181.81% in the first half of the year before recording a 30.12% decline in July, according to Korea Exchange data.
