Why Is South Korea-Focused KORU ETF Plunging Nearly 15% Overnight?

• The KOSPI was down over 10% at the time of writing, dragged by a decline in the shares of Samsung Electronics and SK Hynix, which together comprise more than half of the index.
• Reports that China had developed semiconductor machines that could intensify competition in global AI markets deepened the chip rout further. 
• According to a report from CNBC, moves in the U.S. market are becoming increasingly intertwined with South Korea’s stock market.

The Direxion Daily South Korea Bull 3X Shares (KORU), a leveraged exchange-traded fund that tracks 3x the daily performance of the MSCI Korea Index, plunged over 15% in the overnight session on Monday amid a global chip sell-off due to concerns over AI spending sustainability. 

The KOSPI was down over 10% at the time of writing, after being halted for trading earlier in the day, dragged by Samsung Electronics and SK Hynix (SKHY), which together comprise more than half of the index.

“Samsung and SK Hynix provide the first liquid market reaction to overnight developments affecting global AI demand,” Jung In Yun, founder of Fibonacci Asset Management, told CNBC. 

“SK Hynix in particular has become an important barometer because of its exposure to high-bandwidth memory, which is one of the most critical components in the AI supply chain,” he added. 

Chip Stock Slide: The China Factor

Reports that China had developed semiconductor machines that could intensify competition in global AI markets deepened the chip rout further.  The Information reported that a Chinese state-backed company has begun manufacturing immersion DUV lithography machines, signaling China's push to reduce its reliance on foreign chipmaking technology.

Sentiment was further impacted by the ​blockbuster ​debut of ChangXin ⁠Memory Technologies on the Shanghai Stock Exchange, with shares soaring to make it the most valuable listed company in mainland China.

Weakness In US Markets Creates Further Concerns

U.S. semiconductor stocks extended their selloff on Monday as investors took profits after the sector's record rally, fuelling concerns that chipmakers could be entering a more prolonged downturn. 

Major chipmakers including SanDisk (SNDK), Western Digital (WDC), Advanced Micro Devices (AMD), Micron Technology (MU) and Nvidia (NVDA) also posted sharp losses. 

According to a report from CNBC, moves in the U.S. market are becoming increasingly intertwined with South Korea’s stock market.

The 60-day correlation between the KOSPI and Nasdaq 100 is now around 0.50, the highest level since 2021, according to data from Rayliant, as per the report. This highlights how Samsung Electronics and SK Hynix have become increasingly central to the AI memory chip supply chain serving U.S. tech giants.

“The correlation has increased because the KOSPI has become a semiconductor index,” Rolf Bulk, analyst at Futurum Group, reportedly told CNBC via email.

KORU ETF: What’s Retail Saying?

Despite the sharp selloff, KORU is up about 65% this year. On Stocktwits, however, retail sentiment was ‘bearish’ at the time of writing. 

One user said, “$KORU ai bubble burst.”

Meanwhile, sentiment for SKHY was also ‘bearish’ at the time of writing. 

Another user noted the U.S.-Korea correlation, saying, “$SKHY so nasdaq follows kospi then kospi follows nasdaq then nasdaq follows kospi then……….”

SKHY is down nearly 15% since its debut in the U.S.

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