On July 29th, Hong Kong-listed memory storage concept stocks continued their downward trend. The CSOP Samsung 2x Leveraged ETF fell more than 25%, the CSOP SK Hynix 2x Leveraged ETF slumped over 16%, and GigaDevice Semiconductor (HK) shares dropped more than 10%. This marked the conclusion of what has been one of the most brutal rounds of decline for the Hong Kong storage sector in recent years during the past July, with leveraged ETF products suffering particularly severe losses.
Leveraged ETFs Lead the Decline, Assets Under Management Shrink Sharply
According to statistics, the CSOP SK Hynix 2x Leveraged ETF has accumulated a decline of over 80% since the start of July. The product has fallen from a peak of 193.65 Hong Kong dollars on June 25th to near a low of 28.28 Hong Kong dollars today (July 29th), representing a drawdown of more than 85% from its high. The CSOP Samsung 2x Leveraged ETF has declined approximately 70% over the same period. The asset sizes of these leveraged ETFs have also shrunk significantly. As of July 27th, the size of the CSOP SK Hynix 2x Leveraged ETF had contracted by 56% compared to the end of June, while the CSOP Samsung 2x Leveraged ETF had shrunk by nearly 70%. Market analysts pointed out that the amplification effect of leveraged ETFs exacerbates the loss of net asset value during market downturns, which is the primary reason for their particularly pronounced declines.
On the previous trading day (July 28th), these two Hong Kong-listed leveraged ETFs experienced even more intense selling: the CSOP SK Hynix 2x Leveraged ETF plunged over 30%, the CSOP Samsung 2x Leveraged ETF fell more than 27%, and GigaDevice Semiconductor (HK) also dropped over 17% that day.
Negative Sentiment from Overseas Markets Spreads, Pressure on Korean Memory Stocks and A-Shares
On the news front, on July 29th, South Korea's KOSPI index continued its decline, with its intraday loss expanding over 8%, bringing its monthly loss to 36%. SK Hynix saw its intraday decline widen to nearly 12%, while Samsung Electronics fell 7.5%. Subsequently, the KOSDAQ index triggered a circuit breaker, suspending trading for 20 minutes. Notably, SK Hynix's second-quarter earnings report, released early on July 29th, showed quarterly revenue of 79 trillion Korean Won and operating profit of 60.54 trillion Korean Won, both falling short of market expectations (analysts anticipated revenue of 84 trillion Korean Won and operating profit of 64.22 trillion Korean Won). The report further exacerbated concerns about the industry's prosperity.
Multiple Factors Converge to Trigger Deep Sector Correction
The recent sharp decline in the Hong Kong storage sector is the result of multiple factors converging. First, global AI leader Nvidia is advancing a large-scale AI infrastructure transaction worth over $750 billion, raising concerns about the sustainability of AI capital expenditure and causing investors to question the 'revolving financing' model. Second, international investment banks like Morgan Stanley have recently released reports warning that the memory chip price upcycle may be nearing its peak, with expectations of an industry turning point growing, directly impacting leveraged long positions. Third, the concentrated liquidation of leveraged positions by South Korean retail investors has exacerbated the cascade effect – in July, the cumulative forced liquidation scale in the Korean market reached 344.2 billion Korean Won, with over 1.2 million leveraged accounts hitting margin calls. Since Hong Kong-listed ETFs track the performance of Korean memory giants, the volatile movements in the Korean market were quickly transmitted to Hong Kong through these linked products.
Outlook for the Memory Storage Sector: Bullish and Bearish Views Diverge
After the brutal July sell-off, the future direction of the memory storage sector has become a market focus. Guotai Junan International believes that the supply-demand gap in the storage industry is still deepening, and the price uptrend is expected to continue until 2027. The sector currently trades at only 4-5 times forward P/E for 2027, suggesting that the risk-reward has become attractive for long-term value. UBS has also raised its memory price forecasts, judging that the DRAM industry supply-demand situation will remain tight at least until the first half of 2028. However, Morgan Stanley warned in its July report that the AI-driven 'super cycle' for memory is approaching an inflection point, with memory contract prices expected to peak in the fourth quarter of 2026. The market's earnings upgrade ratio for memory manufacturers has already fallen from a peak of 92% to 77%. SPDB International pointed out that as a 'bellwether' for the AI supply chain, the memory sector's short-term volatility will remain elevated. Two key observation variables are crucial: first, whether Korean memory stocks stabilize (a key signal for the completion of the deleveraging process); second, the capital expenditure guidance from major cloud service providers in their second-quarter reports – if maintained or raised, it could provide a buying opportunity; if lowered, the narrative of computational capacity oversupply will continue to strengthen.
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