U.S.-listed ‘3x Korea ETF’ plunges 30%…Will semiconductor stocks fall further? [Market Preview]

Korean stocks on the 4th are expected to face renewed downside pressure following the previous session’s “Black Tuesday.” The drag comes as spillover effects from a potential closure of the Strait of Hormuz intensify amid the continuing war between the United States and Iran. After the KOSPI posted its largest one-day drop on record a day earlier, major U.S. stock indexes also slid overnight on war-related concerns.

Semiconductors, autos, utilities sink…only defense stocks rise

The KOSPI suffered one of its worst days on record in the prior session, closing at 5,791.91 after plunging 7.24% from the previous day. Risk-off sentiment took hold amid heightened war uncertainty, while fears spread that rising global oil prices could delay the U.S. Federal Reserve’s rate-cut timeline.

During the morning session, the index rebounded to around 6,180 as retail buying aimed at “bargain hunting” came in despite the decline, but volatility was extreme as heavy net selling by foreigners persisted, sending the index tumbling back to the 5,791 level.

The semiconductor sector (-10.48%), which had led the market’s rally, dragged the index down as heavyweight stocks such as Samsung Electronics (-9.88%) and SK hynix (-11.5%) plunged. The automaker sector (-11.54%) also weakened after sharp falls in Hyundai Motor (-11.72%) and Kia (-11.29%). The electric utilities sector (-11.15%) posted the biggest drop as its bellwether Korea Electric Power (-12.99%) sank.

In contrast, the aircraft manufacturing and defense sector (+18.26%) helped limit the index’s decline by +0.65% on strength in Hanwha Aerospace (+19.83%) and LIG Nex1 (+29.86%). Shipping stocks as well as some refiners and petroleum product distributors also rose on expectations of higher sea freight rates from a Strait of Hormuz blockade and on continued gains in oil prices.

The KOSDAQ closed at 1,137.7, down 55.08 points (4.62%). Semiconductor-related materials and equipment stocks helped push the semiconductor sector down 3.14%. In the secondary battery materials and equipment sector (-9.85%), major names such as Ecopro (-11.35%) and Ecopro BM (-9.93%) fell sharply. The pharma and biotech sector (-3.25%) was also weak, with Samchundang Pharm (-8.61%) and Alteogen (-6.01%) declining.

Unlike the KOSPI, where foreigners sold about 5 trillion won net, foreigners were net buyers of 584.5 billion won on the KOSDAQ. Institutions also bought a net 219.3 billion won. Retail investors, however, were net sellers of 757.8 billion won, moving to take profits.

U.S. ‘3x Korea’ ETF plunges 31%

On Wall Street, a key barometer for Korean equities, all major indexes declined in the previous session. The Dow Jones Industrial Average closed at 48,501.27, down 0.83%. The S&P 500 fell 0.94% to 6,816.63, while the Nasdaq Composite dropped 1.02% to 22,516.69.

The Philadelphia Semiconductor Index, which has a major influence on Korean markets, fell 4.58%. All 30 constituents of the index declined. Micron Technology plunged 8%.

Among big tech, Microsoft rose 1.35%. Meta and Amazon ended slightly higher. Apple and Alphabet posted declines of less than 1%. Nvidia fell 1.33% and Tesla dropped 2.70%.

U.S.-listed ETFs that invest in Korean equities saw outsized declines. Among overseas-listed ETFs investing in Korea, the largest by assets, iShares MSCI South Korea (EWY), fell 10.30%. The ETF invests in Korea’s top market-cap names, including Samsung Electronics (28.72%), SK hynix (19.73%) and Hyundai Motor (2.82%).

Direxion Daily South Korea Bull 3X Shares (KORU), known as the “3x Korea ETF,” plunged 31.10%. The ETF delivers triple the daily move of the MSCI Korea Index. Franklin FTSE South Korea (FLKR) fell 10.25%.

“More downside pressure likely”

Experts say the Korean market has yet to confirm a bottom. With a tug-of-war in flows between foreigners and retail investors, the index could be pushed down once more.

Han Ji-young, a researcher at Kiwoom Securities, said, “Korean stocks are likely to face downside pressure early in the session as Middle East geopolitical risks persist and U.S. semiconductor shares plunge,” adding, “However, some of these negatives were priced in during the prior day’s rout, and bargain buying may also emerge, so additional downside pressure during the session could be limited.”

Noh Dong-gil, a researcher at Shinhan Investment Corp., said, “This won’t be a market where the correction stops simply because prices are cheaper than before.” He added that downside rigidity may begin to appear “when at least two of the following three conditions are confirmed: the exchange rate does not remain stuck in the 1,480 won range and instead retreats; the pace of foreign selling slows; and energy prices shift from further spikes to stabilization.” He said that if, instead, the exchange rate remains entrenched and futures selling re-accelerates while energy prices stay elevated, “another round of downside testing could open up even if valuations approach the lower band.”

Reporter Seon Han-gyeol