The South Fang 2x Long SK Hynix ETF (07709-HK) dropped 18.20% on Friday morning, falling below 47 HKD, despite the Korean stock market being closed on the 17th. The weekly decline reached 47%, and from its historical high, the ETF has declined over 70% in less than 1 month. The crisis was triggered by a KIS brokerage report on July 13, which predicted SK Hynix's Q2 revenue and operating profit would hit records but came in approximately 8% below market expectations. This event reflects market concerns about semiconductor industry prospects and reveals the amplified risks of financial leverage tools during market downturns.
KIS Brokerage Downgrades Q2 DRAM Price Forecast
KIS brokerage issued a pre-earnings report on July 13 predicting SK Hynix's Q2 revenue and operating profit would reach historical highs, but the figures were approximately 8% below market expectations. The report identified structural pricing issues with high-bandwidth memory (HBM), noting that SK Hynix's long-term supply agreements (LTA) with major clients like NVIDIA (NVDA-US) locked in prices in advance, preventing the company from fully benefiting from spot market price increases. KIS revised its Q2 DRAM average selling price (ASP) growth forecast from 50% down to 28.9%.
South Korean Regulators Tighten Leveraged ETF Rules on July 16
The South Korean Financial Services Commission (FSC) announced strict regulations on single-stock leveraged ETFs on July 16, including raising margin thresholds and prohibiting new product listings. On the same day, the South Korean central bank raised interest rates to 2.75%, marking South Korea's entry into a monetary tightening cycle and further contracting market liquidity.
Margin Calls Reach 425.8 Billion KRW as Retail Accounts Decline
Margin call amounts at South Korean brokerages reached 425.8 billion KRW. Retail margin accounts decreased by 34 trillion KRW within one month. The leveraged ETF's daily rebalancing mechanism forced large-scale mechanical selling at market close when stock prices fell sharply, creating self-reinforcing selling pressure. Retail investors became the primary buyers but faced significant forced liquidation pressure.
SK Hynix Scheduled to Release Official Earnings on July 29
SK Hynix is scheduled to release its official financial report on July 29. The market is closely watching for further guidance on HBM4 mass production schedules and capital expenditure plans.
FAQ
What caused the South Fang 2x Long SK Hynix ETF to drop 47% this week?
The KIS brokerage report on July 13 predicted SK Hynix's Q2 results would be approximately 8% below market expectations, triggering the selloff. KIS revised its Q2 DRAM average selling price growth forecast from 50% down to 28.9%, citing structural pricing issues with long-term supply agreements.
What regulatory actions did South Korea announce on July 16?
The South Korean Financial Services Commission announced strict regulations on single-stock leveraged ETFs on July 16, including raising margin thresholds and prohibiting new product listings. The South Korean central bank also raised interest rates to 2.75% on the same day.
When will SK Hynix release its official Q2 earnings report?
SK Hynix is scheduled to release its official financial report on July 29. The market is watching for guidance on HBM4 mass production schedules and capital expenditure plans.
