Following a sharp global tech sell-off, Hong Kong's three major indices all turned negative today, with the Hang Seng Tech Index plunging over 4%.
South Korean equity ETFs continue to face pressure from a regulatory crackdown on leverage and a central bank interest rate hike.
Multiple negative factors converged, leading to a collective slump in semiconductor and chip ETFs.
At the close, the Hang Seng Index fell 1.78% to 24,562.24 points, with a full-day turnover of HK$347.325 billion.
The Hang Seng Tech Index dropped 4.37% to 4,623.17 points.
Among major Hong Kong-listed ETFs by size, the Tracker Fund of Hong Kong (02800) closed down 1.89% at HK$24.98.
The CSOP Hang Seng China Enterprises Index Daily (2x) Leveraged Product (07709) tumbled 20.68% to HK$44.8.
The Hang Seng China Enterprises Index ETF (02828) ended 2.17% lower at HK$83.7.
Sector Performance Analysis
South Korean Equity ETFs Under Pressure
South Korean equity ETFs remained under pressure due to a regulatory push to reduce leverage and a central bank rate hike.
By the close, the TR Korea ETF (02848) was down 7.43% at HK$1,545.
The CSOP Hang Seng China Enterprises Index Daily (2x) Leveraged Product (07709) fell 20.68% to HK$44.8.
The CSOP Samsung Electronics Daily (2x) Leveraged Product (07747) dropped 19.04% to HK$67.2.
On July 16, South Korea's Financial Services Commission announced several regulatory measures.
These include raising the minimum margin requirement from 10 million won to 30 million won, allowing only cash as collateral, proposing to increase the minimum trading unit from 1 share to 20 shares, and prohibiting brokerages from issuing new single-stock leveraged products.
Analysis suggests that suspending new product issuance and the 30 million won cash margin requirement are the most impactful measures.
The 30 million won margin threshold equates to 7% of the assets and 27% of the financial assets of households in the third income quintile, posing a substantial barrier for retail participation.
In contrast, extending educational hours and raising the minimum trading unit (20 shares, approximately $190) are expected to have a more limited practical effect.
Analysts have reiterated a 12-month target of 9,200 points for the KOSPI index, corresponding to a next-twelve-month (NTM) price-to-earnings ratio of 9x, with downside/upside scenarios of 5,500/10,500 points.
The core logic supporting this view is that KOSPI's earnings per share (EPS) are projected to grow by 265% and 66% in 2026 and 2027, respectively, with valuations at historical lows, making the overall market still attractive.
However, in the short term, uncertainty surrounding AI demand prospects and volatility in the earnings outlook for Samsung Electronics and SK hynix are expected to keep market volatility elevated.
This rise in volatility, in turn, is likely to accelerate the further contraction of leveraged ETF assets.
Additionally, the Bank of Korea announced a rate hike to 2.75% on July 16, further tightening market liquidity.
It is worth noting that the KOSPI index has fallen more than 27% from its previous historical high, placing it deep in technical bear market territory.
Semiconductor and Chip ETFs Suffer Heavy Losses
Multiple adverse factors combined to cause a sharp decline in semiconductor and chip ETFs.
At the close, the Huatai-PineBridge CSI South Korea Semiconductor ETF (513310.SH) fell 10% to 4.636 yuan.
The Guolian Ansem Semiconductor ETF (512480.SH) dropped 7.68% to 1.07 yuan.
The ChinaAMC Chip ETF (159995.SZ) declined 7.37% to 1.22 yuan.
A-share semiconductor and chip-related ETFs experienced severe adjustments due to multiple negative factors, including the South Korean regulatory tightening on leveraged ETFs triggering a sell-off and a sharp overnight drop in U.S. memory chip stocks.
Analysis points out that since peaking in June, assets under management for memory chip leveraged ETFs have shrunk by 34%, while the total for all leveraged equity ETFs has fallen only 13% over the same period.
The asset size of leveraged ETFs for memory stocks accounts for roughly three times the proportion of the market capitalization of related companies compared to regular equity ETFs, acting as a significant amplifier of industry volatility.
South Korea's recent regulatory tightening has further accelerated this deleveraging process.
Analysts believe that recent changes in the memory chip narrative have created a negative feedback loop between market declines in South Korea and leveraged trading stop-losses.
The KOSPI index has fallen 27.5% from its peak, with risk sentiment spilling over to U.S. and A-share technology hardware sectors.
Other analysis suggests that as selling pressure on the South Korean semiconductor sector intensifies, investors are reallocating to the still lower-valued Chinese tech sector.
It is noted that Chinese tech stocks have recently shown an inverse correlation with the previously soaring South Korean memory chip stocks.
Institutional Perspectives
One view from fund managers is that while market volatility has increased further, from the perspective of balanced allocation and risk avoidance, the attractiveness of large-cap broad-based indices has risen.
Specifically, after the previous sustained rapid rise in A-shares, valuations and trading concentration in some tech sectors have increased, making them more sensitive to negative news and leading to greater overall market volatility.
Another prominent investment bank's China equity strategist explicitly stated in a recent report that they do not subscribe to the market narrative of an imminent "bubble burst."
This view is supported by three key factors: the health of corporate balance sheets, the continuous improvement in large language model capabilities, and the difficulty in resolving AI hardware supply bottlenecks in the short term.
On the liquidity front, the proportion of margin trading in the A-share IT industry has fallen from a medium-term peak of around 12% to 8%-9%, indicating that the most highly leveraged positions have largely been forced out, and the deleveraging process is essentially complete.
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