Samsung, SK Hynix Surge Triggers 10% Red Line, Record Outflow of Foreign Capital from South Korean Stocks

Driven by the wave of artificial intelligence, Samsung Electronics and SK Hynix have seen their stocks surge 147% and 245% respectively within the year, with both market valuations breaking through the $1 trillion mark. However, this epic surge has led to a large number of global funds frequently hitting the regulatory position limit of 10% for individual stocks. Many asset management institutions, including GAM Investment and Jupiter Asset, have been compelled to carry out mechanical, mandatory reductions in accordance with compliance obligations.

These consecutive reductions triggered by risk control rules have directly led to a record net outflow of foreign capital from the South Korean stock market. As of Thursday, global investors have cumulatively net sold about $63.6 billion worth of South Korean stocks within the year, setting a historical record since records began in 1999. Among these, passive liquidation outflows from Samsung Electronics and SK Hynix amounted to a staggering $58.6 billion. Goldman Sachs estimates that diversified investment rules have cumulatively driven out about $69 billion worth of hard-core selling pressure since late October of last year.

The root cause of the funds frequently hitting the limit lies in the near-monopoly extreme weight of these two giants in the South Korean domestic market. Currently, Samsung Electronics and SK Hynix together account for 52% of the total market capitalization of the entire South Korean Composite Stock Price Index (Kospi), while companies like Hyundai Motor and Samsung Electro-Mechanics that rank immediately after hold a weight of only about 2%.

Facing the rigid constraints of position limits, funds that are optimistic about the prospects of South Korean chips are beginning to find alternative avenues. Eugene Asset Management's Chief Investment Officer, Ha Seok Keun, pointed out that a large amount of capital is seeking to indirectly expand its semiconductor exposure by purchasing related companies of the two chip giants, upstream holding companies, or insurance companies that hold a significant amount of their shares. Goldman Sachs also points out that although there is still selling pressure with the increase in concentration in the short term, this wave of forced selling has largely approached its end.