Recent sharp swings in global technology stocks have been primarily driven by "crowding effects" stemming from excessive leverage, according to Goldman Sachs. While surging margin debt has exposed vulnerabilities in markets like the US and South Korea, underlying industry fundamentals remain supportive, suggesting the current liquidity-driven pain may present selective buying opportunities.
Global tech sectors have experienced severe turbulence, with talk of the semiconductor cycle having "peaked" gaining traction. However, analysis from major investment banks like Goldman Sachs and Leuthold Group indicates this correction may not stem from a fundamental reversal, but rather from a liquidity-driven "deleveraging" storm triggered by high-leverage trading.
The irrational sell-off in South Korea's KOSPI index recently drew significant attention. In a report titled "KOSPI Tests Key Technical Support," Goldman Sachs explicitly stated that newly launched "single-stock leveraged ETFs" were a core driver amplifying intraday volatility.
Statistics show that several 2x leveraged ETFs tracking Samsung Electronics Co Ltd and SK Hynix Inc previously suffered single-day declines exceeding 30%. Such extreme volatility forced fund managers to sell the underlying stocks to maintain target leverage ratios. This forced selling triggered a vicious cycle of "price decline – forced selling – further price decline," creating a classic liquidity crunch. Goldman Sachs estimates that approximately 62% of net selling by South Korean institutional investors recently originated from the liquidation of such ETFs.
Similarly, the US market faces concerns over excessive leverage. Scott Opsal, Chief Investment Officer at Leuthold Group, points out that the growth rate of US margin debt has entered a "red zone."
Data shows that over the 12 months ending this May, the growth rate of US margin debt surged as high as 54%, reaching the 10th decile historically. Looking back, such aggressive expansions in margin debt have often coincided with major market peaks in 2000, 2007, and 2021. This behavior of "borrowing to buy stocks due to overconfidence" reflects a prevailing "lottery ticket mentality" in the market.
Analysts note that these leveraged funds are highly concentrated in semiconductors and the AI supply chain, making the market structure extremely fragile. Once sentiment reverses, a collective exit by leveraged positions could lead to violent corrections in previously strong sectors.
Remaining Optimistic on Semiconductor Fundamentals
Despite liquidity pressures, Goldman Sachs maintains an optimistic outlook on the semiconductor sector's prospects. In response to skepticism that the semiconductor cycle has peaked, Goldman believes such a judgment is premature.
From an earnings perspective, profit expectations for Samsung Electronics Co Ltd and SK Hynix Inc have not been downgraded. From a supply-demand perspective, due to constraints on memory chip capacity expansion, supply shortages could persist until the second half of 2028. Goldman Sachs views the current adjustment more as a "position clean-out" rather than an industry downturn.
Key Technical Levels to Watch
In the face of extreme volatility, Goldman Sachs advises investors to monitor technical support levels. The primary key level for the KOSPI index is currently at 6,800 points; a break below this would suggest a test of 6,500 points. In an extreme scenario, the 6,000-6,100 point range would constitute very strong support.
Comments