On June 5th, stock markets in Japan and South Korea opened with a dramatic straight-line drop. South Korea's KOSPI composite index fell by over 6% during the session, with Samsung Electronics Co., Ltd. dropping over 6% and SK Hynix Inc. plunging more than 8%. During this period, due to a 5% decline in KOSPI 200 futures, the Korea Exchange triggered a circuit breaker mechanism, halting program trading for five minutes. The Japanese stock market also experienced a significant decline, with the Nikkei 225 index falling over 1,200 points, a drop of 1.85%.
Previously, Japanese and South Korean markets had surged, driven by a strong rally in the semiconductor sector, with South Korea even witnessing a phenomenon of nationwide stock trading. Data shows a large number of South Koreans over 60 are borrowing money to trade stocks, and a significant number of accounts are being opened for individuals under 18, including infants, as parents can open accounts for their children in South Korea. In the first quarter of this year, the number of new accounts opened for those under 18 in South Korea surged nearly tenfold compared to the same period last year.
The frenzied rise in the South Korean market has created a pronounced herd effect, with trend-following speculation being very evident. The substantial gains in chip leaders like Samsung and Hynix created a strong wealth effect, attracting massive capital inflows but also accumulating significant risk. The Japanese market has similarly seen a manic surge, where sharp gains often signal the accumulation of substantial downside risk. Hot sectors attract large inflows of capital, further fueling concentrated speculative activity that can lead to declines.
This serves as a warning for A-share investors: overly crowded sectors can trigger short-term volatility risks. Following the recent consecutive gains in tech stocks, I had cautioned about the risk of a rapid short-term pullback, and over the past two weeks, tech stocks have generally experienced a significant correction. Of course, from a long-term perspective, this round of AI technological revolution will bring substantial earnings growth opportunities to leading companies in sectors like chips, semiconductors, computing power, and algorithms. Over the long run, leading companies can still digest their valuations through earnings growth. However, stocks that are purely driven by thematic speculation and hype could face significant declines or even the risk of a bubble burst.
Overnight US Market Performance
US stocks closed mixed overnight. The Dow Jones Industrial Average rose over 870 points to a record high, while the Nasdaq was dragged lower by a sharp drop in Broadcom Inc.. US investors are rotating from chip stocks into bank and retail stocks, while continuing to monitor the latest developments in the Middle East, indicating a certain degree of style rotation. Chip stocks, which previously led the market to record highs, were broadly lower, with US tech stocks falling over 5%. After two months of a stunning rally, this upward move is showing signs of fatigue.
The stalemate in the Strait of Hormuz shows no end in sight, keeping international oil prices elevated and potentially pushing US inflation higher. The new Federal Reserve Chairman, traditionally seen as hawkish, may implement balance sheet reduction and further delay interest rate cuts upon taking office, which could also negatively impact the Nasdaq's trajectory.
On the economic data front, the US Labor Department reported on Thursday that initial jobless claims for the week ending May 30 totaled 225,000, an increase of 13,000 from the previous week and higher than the Dow Jones consensus estimate of 215,000, marking the highest level of claims since the week of February 7th. US first-quarter productivity rose 0.3%, below the expected 0.5%; unit labor costs increased 1.8%, lower than the expected 2.4%.
Mounting Concerns Over a Tech Bubble
The United States is essentially betting its national strength on the AI technology sector, which has caused the tech bubble in US stocks to continuously expand, raising concerns among many rational investors. Prominent investors like Rogers, Buffett, and Dalio have all issued risk warnings or significantly reduced their US stock holdings in response. This AI tech revolution will produce a group of great companies, but the excessively rapid rise has indeed pushed valuations to historical highs, with the risk of a bubble burst looming persistently.
In May of this year, on my eighth trip to the US to attend the Berkshire Hathaway annual meeting, Buffett opened with an excellent analogy: the current US stock market is like a church with a casino attached; the casino is more attractive, and more and more people are running to the casino. He used this to express concern about the current tech bubble in US stocks. He has also previously said that the formation of a bubble is like a dance party, where everyone wants to leave before the party ends at midnight, but unfortunately, there is no clock in the room to tell you what time it is.
Later, when I took entrepreneurs to visit financial institutions like Morgan Stanley on Wall Street, they indicated that for clients with high-risk appetites, they advise "dancing closest to the exit." This may reflect the mindset of many investors: everyone knows the bubble is here, but no one wants to leave, requiring constant vigilance to exit promptly if the bubble bursts.
For A-share investors, one can reference the movements of US stocks to gauge when the tech bubble might peak. Check each morning if overnight US markets are stable; if US markets experience a major decline overnight, particularly if the Nasdaq falls 10% or more in a single day, it could be a sign of the tech bubble bursting, at which point one might consider adjusting their portfolio positioning.
SpaceX IPO Progress
There is new progress on the highly anticipated SpaceX listing. SpaceX has formally submitted its IPO prospectus to the US SEC, initiating the listing process. SpaceX's valuation could reach a range of $1.75 trillion to $2 trillion, with a fundraising target of $75 billion, which would make it the largest IPO in history. This would bring Elon Musk's net worth to $1 trillion, setting a record in human history.
The listing of SpaceX will undoubtedly provide some impetus to sectors like commercial aerospace, artificial intelligence, and computing power, and formally marks a step in humanity's exploration of space. In an interview, Musk stated that his goal to explore Mars and plans to build a base for 1 million people on the moon are not about abandoning Earth, but about creating a backup for it. Musk is undoubtedly an entrepreneur with grand vision and sentiment.
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