[Seoul Market Wrap] SK Hynix: A Fortress at 5,500p, But Bleeds Under Heavy Selling

Despite late-session selling pressure driven by AI financial concerns and oil price worries, the KOSPI index recovered to the 5,500 level, erasing intraday losses. The index dipped below the key level five times during the session, with more decliners than gainers across both markets, contrasting the index performance.

Market Highlights

• AI financial worries resurface, dragging the KOSPI below the 5,500 mark intraday.

Early in the trading session, AI's financial issues and international oil prices were the primary catalysts.

Investors focused on Meta's earnings announcement, which revealed a negative cash flow conversion, despite revenue and profit growth.

The concern arises as investment expenditures outpace revenue growth, potentially leading to increased financial strain on AI companies if monetization falls short of expectations.

Jensen Huang's comments, identifying 'capital' as a limiting factor for NeoCloud's growth rather than demand, added to the worries.

His remarks were interpreted to mean that while demand is strong, fulfilling it requires raising more capital, which further exacerbated recent financial concerns for AI-related stocks, as reflected in rising credit risk indicators.

Media reports surrounding the potential for U.S. military action against Iran also weighed on oil prices and broader market sentiment.

Market Jitters Over Oil Supply Disruptions from the Middle East

As the northern hemisphere heads into the winter season, heightened concerns over potential supply disruptions from the Middle East could exert upward pressure on oil prices, a sentiment that persists.

② Solidigm's IPO Withdrawal: SK hynix Stages a Sharp Rebound

The turning point during the trading session was marked by SK hynix.

Amid reports of Solidigm's decision to withdraw its IPO plans, concerns over shareholder value erosion, which had been raised recently, were alleviated.

As news spread that SK hynix would not pursue an IPO, considering the capital market conditions, the company witnessed a sharp intraday rebound.

In tandem with SK hynix's rise, some semiconductor and materials stocks also narrowed their losses, and the KOSPI quickly recovered.

The KOSPI, which had dipped below the 5,500 level five times during the session, regained its footing above this threshold, propelled by SK hynix's rebound.

Samsung Biologics and certain pharmaceutical stocks also exhibited strength.

③ Index Recovery, but Individual Stocks Remain Weak

While SK hynix propelled the index higher, overall market sentiment did not fully recover.

Both markets saw a disproportionate number of decliners compared to advancers, highlighting a significant disparity between the index performance and individual stock perception.

Supply and Demand Dynamics

Foreign investors continue their selling spree, with most sectors seeing net sales, excluding general services.

Institutional investors, on the other hand, are net buyers of electric & electronics, pharmaceuticals, and financial sectors. On KOSDAQ, they are selectively buying chemicals, metals, and IT services.

KOSDAQ foreign investors are net buyers of machinery, equipment, and non-metals.

The market continues to react more strongly to negative news than to positive developments.

Sector Outlook

The ongoing foreign selling pressure is attributed to concerns over AI financial issues and the recurring oil price worries stemming from the Middle East.

However, SK hynix's sharp rebound on news of Solidaim's withdrawn IPO plan has helped reduce the index's decline, with large-cap semiconductors leading the way.

While some semiconductor small-cap and pharmaceutical stocks showed strength, the overall decline in both markets was significant.

The market capitalization of Yahoo Finance's Semiconductor Basket, comprising 60 stocks, has decreased by approximately $3 trillion since June 6th, with a single-day drop of nearly $900 billion on Thursday.

This figure illustrates the substantial correction underway across the semiconductor sector.

Market Perspective

Recently, the market has been reflecting known factors rather than new negative developments. AI monetization, NeoCloud funding, and data center investment costs continue to be recurring themes, but there has been no significant deterioration in corporate earnings or demand forecasts.

Market Concerns and Upcoming Events

Despite the impact of negative news, the market remains cautious due to the potential connection between the complex financing structures and high investment costs of AI infrastructure companies and their actual financial issues. As a result, a significant number of NeoCloud-related stocks have given up all their gains from the second quarter, reflecting these concerns.

Next week, two key events will be closely watched. Firstly, it is crucial to assess whether the recent decline in Treasury yields continues post-FOMC. While the drop in rates is attributed to safe-haven preferences rather than stable oil prices, the upward pressure on rates has been a significant factor in valuing AI stocks. Therefore, a sustained downward trend could be a positive factor for tech stocks.

The SK Hynix conference call is another notable event on the calendar. Following the withdrawal of the Solidaim IPO plan, the presentation of any additional shareholder return initiatives could impact market sentiment. The U.S. Semiconductor Index has closed near its 200-day moving average after a significant adjustment. This section will focus on identifying any rebound attempts, particularly among stocks that have overreacted to repeated negative news.

Bloomberg Financial Insights: Market Analysis

Source: Stock Stories by Mr. Market t.me/shmstory

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The following article is a reconstructed version of a post from Stock Stories by Mr. Market, with the author's consent. Please note that all content may contain errors and is not to be construed as buy or sell recommendations. The information presented herein should not be relied upon as a basis for making any trading decisions.

Market Update: Late-Session Selling Pressure

In early trade, the market experienced a surge in selling pressure, erasing intraday gains. This late-session move was attributed to margin call liquidations and profit-taking strategies.

"The yield rates on government bonds have been a key indicator, and the recent rise has sparked concerns among investors. Commercialization of certain sectors may also be a factor, leading to a shift in market sentiment."

As we head into the latter half of the trading day, investors will be closely monitoring the market's response to these developments.

Stay tuned for further insights and analysis from Bloomberg Financial Insights.