Samsung, SK Hynix Margin Debt Jumps $507 Million in July as Forced-Sale Fears Grow

Margin loans tied to Samsung Electronics and SK Hynix near 10.8 trillion won

Peak-out fears and leverage-driven flow distortions add pressure

The two chip giants have tumbled 16.77% and 17.51% this month alone

Brokerages also warn of slower profit growth in the second half

Some analysts urge caution despite valuations near historic lows

Retail investors sharply increased debt-funded bets on Samsung Electronics and SK Hynix this month, with borrowing to buy the two stocks rising by nearly 700 billion won ($507 million). Concerns are mounting that forced selling could accelerate as fears of a semiconductor peak-out deepen and leverage tied to single-stock products worsens volatility in the two chipmakers.

Outstanding margin loans for Samsung Electronics and SK Hynix totaled 10.7596 trillion won as of July 8, according to the securities industry on July 9. The balance rose by 699 billion won in just six trading days this month, underscoring a sharp increase in funds retail investors borrowed from brokerages to buy the two stocks and have yet to repay.

SK Hynix's margin loan balance stood at 5.236 trillion won as of July 8, up 8.44% from the end of June. That was the largest among companies listed on South Korea's benchmark stock market. Samsung Electronics' margin loan balance rose 6.3% over the same period to 5.5236 trillion won.

The concern is that extreme volatility in both stocks could trigger forced liquidation. Retail investors who buy shares with borrowed money must maintain collateral above a required threshold. If a decline in the stock price pushes that ratio below the minimum, brokerages can forcibly sell the shares at prices below the market.

Samsung Electronics and SK Hynix shares have fallen 16.77% and 17.51%, respectively, this month. Compared with their intraday highs from June, the stocks are down 25.77% and 26.82%. Samsung Electronics reported record quarterly results on July 7, but memory-chip shares continued to slide. Even excluding bonuses, the company posted more than 100 trillion won in operating profit, yet investors grew increasingly concerned that profit growth could slow from the third quarter.

Market watchers also say volatility has intensified since the launch of single-stock leveraged and inverse products tied to Samsung Electronics and SK Hynix. Daily rebalancing in those products increases exposure when share prices rise and cuts exposure when they fall, a trading structure known as short gamma. That can amplify market volatility and widen price swings.

Brokerages have begun raising margin requirements on the two stocks. Kiwoom Securities recently lifted the margin rate on Samsung Electronics and SK Hynix to 30% from 20%. Mirae Asset Securities raised the rate to 40% from 20% for both stocks. Korea Investment & Securities applies a 60% margin requirement to each name.

Views among domestic and global brokerages on memory-chip makers have also shifted. Morgan Stanley, often regarded in South Korea as bearish on semiconductors, wrote in a July 6 report that momentum in chip stocks was weakening as investment rotated toward relatively underperforming sectors, including hyperscalers.

South Korean brokerages have also cut target prices for memory-chip makers or flagged concerns about slowing growth.

Kiwoom Securities lowered its target price for Samsung Electronics to 390,000 won from 430,000 won. It was the brokerage's first target-price cut on Samsung Electronics in the past three months. Park You-ak, an analyst at Kiwoom Securities, wrote that volatility could increase in the second half as earnings-per-share growth slows sharply and the memory industry faces changing conditions.

BNK Investment & Securities said on July 8 that SK Hynix's recent plunge reflects slowing demand and that earnings momentum is expected to weaken after year-end. It maintained its target price at 1.85 million won. Based on the previous day's closing price of 2.076 million won, that effectively amounted to a sell call. Lee Min-hee, an analyst at BNK, said valuations do not look cheap beyond this year.

The steep drop in both stocks has pushed valuations down to historic lows, but some analysts argue that alone is not enough to justify increasing positions.

Hwang San-hae, an analyst at LS Securities, wrote in a July 9 report that declines in Samsung Electronics and SK Hynix shares, combined with upward revisions to earnings estimates, had brought their 12-month forward price-to-earnings ratios down to 4.8 times and 5.3 times, respectively, near historical troughs. Even so, he said the discount structure typical of leaders in the artificial-intelligence cycle and valuation distortions that emerge during periods of rapid earnings re-rating weaken the case for adding exposure.

Ko Jung-sam, Hankyung.com reporter, jsk@hankyung.com