A Short Macro Summary

The trade that fell apart back in July got fixed, but the underlying issue behind it never really went away. Memory stocks are back near their highs, Korea entered a bull market again, and local retail investors already rebuilt most of the leverage that wiped them out three weeks ago. Nothing actually changed about the Chinese supply threat either. What changed is that big tech companies confirmed they are still spending tons of cash, and a massive memory shortage got loud enough to cover up everything else. At the same time, US economic numbers came in weak and people stopped expecting a Fed rate hike in September. Then there is October, when the biggest IPO in history is supposed to show everyone what AI tech actually costs to run.

July 30 was basically the bottom for the market. The KOSPI index jumped 17.91% on July 31 to close at 6,595.45, while Samsung and SK Hynix each gained close to 30%, which was the biggest single day move either stock ever had. The rally kept rolling, and by August 13 the index was about 23% above its July low, ending a seven week losing streak when it closed Friday at 6,977. That is still pretty far below the June peak above 9,000, but it was a massive bounce. US memory stocks did the exact same thing on July 30, with Micron jumping 15%, SK Hynix up 16%, SanDisk up 22%, Western Digital up 18%, and Seagate up 16% in just one session. SanDisk had an investor day on August 13 where they projected margins near 80% through 2030, which added another 15% intraday surge and pulled the rest of the sector up with it. Foreign investors came back too, buying around $2 billion worth of Korean stocks in a single week after dumping over $100 billion earlier this year. The forced selling cleared out way faster than expected.

Three weeks ago everyone was obsessing over Korean margin calls, but that situation cleaned up quickly. Goldman reported that Korean leveraged ETF assets dropped from a $53B peak in June down to $25B, while retail margin balances dropped from $25B to $19B. But then look at what happened right after that. Margin debt was at ₩27.44T on August 3, and by August 13 it climbed right back to ₩30.93T. That means people took on ₩3.5T of fresh borrowing in just ten days. Analysts over there think it could keep rising and set a brand new record. KB Securities connected this leverage spike straight to the recovery in Samsung and SK Hynix.

The previous peak was ₩38.6T in June right before everything crashed, which means Korea is already back to about 80% of the debt level that caused the blowup. It is the exact same two stocks and the exact same trade just six weeks later. I am not saying it collapses again next week, but there is zero safety cushion left. Samsung and SK Hynix make up about half of the KOSPI index, so anything hitting those two goes straight through the whole market, and this time it hits investors who just re-borrowed heavily.