📰 Key Highlights

KOSPI triggered circuit breakers for two consecutive days, wiping $620 billion in market cap over those two days, mainly because SK Hynix’s Q2 earnings came in below expectations (despite record operating profit of 60.54 trillion KRW and 557% YoY growth, still short of the 64 trillion KRW analyst consensus). The stock dropped another 4% that day, and combined with Tuesday’s slide it’s now in a sustained rout — SK Hynix and Samsung Electronics together account for nearly half of the Korean index weight. This sell-off was amplified by single-stock leveraged ETFs that were only approved for trading in May; AUM for these products broke $50 billion in July, attracting a flood of young retail traders piling into leveraged positions. These retail traders used to favor crypto but have rotated into AI and semiconductor stocks over the past few months — Korean crypto trading volume has now dropped 28%, while KOSPI is still up 31% YTD. Policy officials have already apologized for approving these leveraged products and are calling to ban retail access again, and the government’s finance ministry has also held emergency meetings to respond.

The market turbulence has simultaneously spread into credit markets. The five-year CDS spreads on a basket of the five largest US cloud giants (Amazon, Meta, Microsoft, Google, Oracle) have jumped from 115 bps to 162 bps in recent months, implying roughly a 12% five-year default probability — showing that the bond market’s concern about AI-related corporate debt is heating up. Oracle, due to its exposure to OpenAI, is seen as the biggest red flag. Overall, semiconductor and AI stock valuations already bake in an optimistic “zero-mistake execution” assumption, and if industry growth targets aren’t met there’s substantial room for downward revisions. See the original link for the full story.

💬 JudyAI Lab Take

KOSPI triggered circuit breakers for two consecutive days, wiping $620 billion in market cap, because SK Hynix’s Q2 earnings — though record-breaking — fell short of analyst expectations, and with Samsung Electronics and SK Hynix together accounting for nearly half of the index weight, the whole market got dragged down.

What’s worth noting is that this sell-off was amplified by single-stock leveraged ETFs — these products were only approved in May this year, and by July AUM had already crossed $50 billion. Young retail traders who used to favor crypto have rotated into AI and semiconductor leveraged targets, and Korean crypto trading volume has dropped 28% as a result. This reflects a phenomenon AI builders should pay attention to: the market’s valuation of AI and semiconductor stocks already implies an optimistic “zero-mistake execution” assumption, and any growth disappointment will trigger sharp corrections. Meanwhile, CDS spreads on US cloud giants have jumped from 115 bps to 162 bps in recent months, showing that the bond market is starting to price in the default risk of AI-related corporate debt — Oracle, due to its OpenAI exposure, is the key name to watch.

For readers holding AI or semiconductor positions, this is a reminder: pay attention to whether earnings merely “meet expectations” or actually “beat expectations that have already been raised” — the market’s reaction to these two scenarios can be worlds apart.

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