In the second half of the deleveraging storm: how far has the semiconductor risk in the US and South Korea been released?

With a deep pullback in the semiconductor sector on both the U.S. and South Korean stock markets, semiconductor leveraged ETFs are undergoing a round of severe deleveraging and liquidation. In the U.S. market, the Philadelphia Semiconductor Index has fallen sharply in the short term, and the total size of semiconductor leveraged ETFs has dropped from a recent record high of 157.4 billion USD to 104 billion USD.

As for South Korea, as of July 8, among the 14 listed single-stock 2x leveraged ETFs tracking Samsung Electronics and SK hynix, 13 have already fallen below their 20,000 won issuance price. Among them, the KODEX Samsung Electronics Leveraged ETF plunged 13.71% in a single day. During the trading session, the intraday decline of related products in the TIGER series at one point nearly approached 20%. The asset management scale of leveraged ETFs tracking SK hynix has also shrunk rapidly from a peak of 16.7 billion USD to 7.8 billion USD—more than half of the high has been wiped out.

Although the semiconductor leveraged ETF scale in both the U.S. and South Korea remains large, the sharp contraction in size suggests that the leveraged capital funding chain that had supported the prior tech bull market has shown systemic loosening. The semiconductor bull market, propped up by massive amounts of leveraged capital, is now going through a brutal deleveraging and liquidation process.

However, given that corporate earnings have not shown a trend of deterioration, Samsung Electronics and SK hynix have even exceeded market expectations. More of the selloff this time is driven by leveraged capital repricing risk. When capital continues to withdraw, even if fundamentals still grow, market valuations may be compressed due to tightening liquidity.

Therefore, for investors, what truly needs attention right now is when leveraged capital will complete its liquidation. Only when passive selling pressure gradually disappears may the market return to being driven by fundamentals.

Semiconductor leveraged ETF rebalancing leads market pricing

The severe turmoil in the semiconductor sector this round has exposed the structural fragility of today’s global technology stocks under extreme leverage. Since late April this year, driven by an AI hardware upcycle, technology stocks have once again become the market’s main theme. Large amounts of capital have concentrated on a small number of AI and semiconductor blue chips, creating a crowded structure in the U.S. and South Korean markets in which leveraged ETFs, margin trading, and options trading collectively drive activity.

As leveraged capital keeps concentrating and its scale keeps expanding, under the negative gamma mechanism of leveraged ETFs, the daily rebalancing trading volume is sufficient to dominate the pricing of underlying assets. The “tail wagging the dog” effect has become a decisive force affecting market stability.