[Anchor]

It is time for our Friendly Economy segment on this Wednesday. Reporter Han Jiyeon is here with us. Han, looking at the stock market lately, even semiconductor stocks are falling.

[Reporter]

A paradoxical analysis suggests that it is not because semiconductor companies are performing poorly, but rather that they are doing too well, which has become a burden.

Samsung Electronics posted record-breaking operating profits in the second quarter, and SK Hynix is also expected to report tens of trillions of won in operating profits; the fundamentals of both companies remain solid.

So why is the stock price fluctuating so significantly? We need to look at an index called MSCI.

It is a representative index that fund managers around the world refer to when deciding which countries and stocks to invest in and how much to allocate.

However, within this index, the combined weight of these three semiconductor stocks—TSMC, Samsung Electronics, and SK Hynix—has grown from less than 14% a year ago to 31% recently. This means that about one-third of actual capital has become concentrated in just these three semiconductor companies.

The problem arises here.

Funds in the U.S. and Europe usually have to follow diversification rules that prevent them from holding too much of a single stock or a specific sector.

Since the weight of semiconductors exceeded these limits, fund managers have been forced to sell semiconductor stocks—reluctantly—simply to comply with regulations, regardless of how well or poorly the companies are performing.

Goldman Sachs also pointed to another factor of mechanical selling. They analyzed that leveraged products designed to track double the performance of Samsung Electronics or SK Hynix stock prices plunged by more than 30% in a single day, and the additional selling of stocks by asset managers to maintain the leverage ratio significantly exacerbated the recent sharp decline.

[Anchor]

You mentioned the SK Hynix ADR listed on the Nasdaq, and since you said it was shaky, it sounds like you are referring to the early hours of yesterday, July 14, but it rose by more than 27% early this morning.

[Reporter]

This is because arbitrage trading, which exploits the price difference between the U.S. and Korea, has surged since SK Hynix was listed on the U.S. Nasdaq.

From the first day SK Hynix was listed on the Nasdaq, the price traded in the U.S. was about 15% to 17% higher than the Korea Composite Stock Price Index (KOSPI) price.

Because the U.S. market attracts global capital, high demand led to a premium.

Hedge funds targeted this for arbitrage trading. The method involves buying expensive stocks in the U.S. while borrowing and selling relatively cheaper stocks in Korea.

As this short-selling volume poured in, it dragged down Korean stock prices further. Combined with the situation where the entire market plummeted, the price gap between the two countries widened to 37% on July 13.

In other words, SK Hynix fluctuated much more violently than other semiconductor stocks due to the combination of foreign investors being forced to sell because of the aforementioned MSCI regulations and the short-selling by these hedge funds.

Analysts also point out that the decline was further amplified by forced liquidations, where individual investors in Korea were unable to hold onto stocks bought on margin and were forced to sell them.

[Anchor]

So, is this morning the first hurdle for the stock market?

[Reporter]

That is correct. The market views this morning as the first hurdle in the recent sharp decline.

In yesterday's session, foreign and institutional investors bought up the volume that individual investors were forced to offload, and SK Hynix's stock price, which had fallen sharply at one point, eventually rebounded to close the session.

The price gap between the U.S. and Korea has also narrowed slightly.

This is interpreted as a sign that hedge funds have begun to realize profits by selling the stocks they bought in the U.S. and using that money to repay the stocks they borrowed in Korea.

However, today is crucial for confirming the true bottom.

The domestic stock market has a structure where if an investor who bought stocks on margin fails to meet the required collateral ratio, the stocks are forcibly sold the following morning after a one-day grace period.

Because a large number of accounts subject to forced liquidation have accumulated due to the historic plunge that occurred on July 13, there is speculation that this volume could hit the market all at once this morning.

Another thing to watch is the price gap between the U.S. and Korea.

The larger the price gap, the more advantageous it is for hedge funds to delay covering their short positions. Conversely, if the price gap narrows, it could lead to short-covering—where they buy back stocks to repay them—which is expected to have a positive impact on stock prices.