Two leveraged funds that track SK Hynix American Depository Receipts (ADR) will be liquidated just over three months after their launch, and this major global supplier of high-bandwidth memory (HBM) will also announce its third-quarter results this week, along with new shareholder return measures.
This indicates that the trading enthusiasm surrounding SK (Hynix, SKHY.O) and AI is rapidly cooling down.
ETF Publisher Tradr ETFs stated that its Tradr 2X Long SK Hynix Daily ETF and the corresponding inverse products will be liquidated around November 12th. These two products offer a daily two-fold increase or decrease in long and inverse positions on SK Hynix ADR, and trading began on July 28th of this year, just a few weeks before SK Hynix ADR entered the US market.
Although the product has existed for a short time, its capital scale has significantly shrunk. Bloomberg data shows that the asset size of both ETF has decreased by nearly 60% from its peak, and currently totals only about 1.3 million US dollars. Among them, the long position in ETF has fallen by more than 5% since its listing, while the short position in ETF has accumulated a decline of over 40%. During the same period, SK and ADR have risen by about 5%.
This performance reflects the typical losses faced by leveraged products, and it also coincides with the recent sharp fluctuations in related assets of AI. The shares of SK Hynix listed in Seoul have currently fallen by about 56% from their annual high points. The strong trading momentum that was previously driven by AI infrastructure expansion and HBM demand has clearly subsided, and the market is now paying more attention to the huge capital expenditures of technology companies, financing costs, and whether AI investments can continue to be converted into profits.
Since the beginning of this year, the stock prices of both SK Hynix and Samsung Electronics have experienced significant fluctuations. A large number of leveraged products in the Korean and overseas markets have further amplified these short-term price swings, and South Korean regulatory authorities have recently begun to tighten regulations regarding such products. In addition to Tradr, institutions such as ProShares, Leverage Shares, and Direxion have also previously launched leveraged products related to SK Hynix.
As leveraged firm ETF faces liquidation, SK Hynix will face a more direct test of its fundamentals this week. The company plans to release its third-quarter earnings after the U.S. stock market closes on Tuesday. Following recent adjustments in Asian tech stocks, these financial results will become one of the key pieces of data for investors to re-evaluate the sustainability of demand for AI memory chips and related capital expenditures.
Bloomberg data shows that approximately 550 MSCI companies comprising the Asia-Pacific index reported their financial results this week, making it the busiest week of the current earnings season in the Asian market. In addition to SK Hynix, core companies in the industry chain such as Samsung Electronics, Japanese semiconductor equipment company Advantest, and Tokyo Electron also disclosed their financial results.
The market environment is clearly different from that of the first half of this year. The MSCI Asia-Pacific index has fallen by more than 6% this month, and AI trading confidence has been impacted. Investors' focus has also shifted from order growth and the AI pace of infrastructure expansion to how much profit these investments will ultimately generate, as well as whether the current valuations are supported by profit growth.
In addition to its operating results, SK Hynix' financial report this time will also come with an important capital allocation decision. The company confirmed on Monday that it will disclose new shareholder return measures when releasing its third-quarter results.
Previously, South Korea's Dong-a Ilbo reported that SK Hynix was considering distributing a special dividend of about 16 trillion Korean won, which is approximately 12 billion US dollars. The funds are likely to come mainly from the proceeds of selling investments related to Kioxia, a Japanese memory chip manufacturer.
Reports estimate that SK Hynix earned a cumulative profit of about 20 trillion Korean won from the sale of related investments in the first two quarters of this year, of which approximately 80% may be returned to shareholders through special dividends. SK Hynix has not confirmed the specific amount yet, only stating that they are "studying various shareholder return measures."
In 2018, the company invested approximately 4 trillion Korean won in Kaihua through a consortium led by Bain Capital. As Kaihua went public in Tokyo in 2024 and its stock price subsequently rose, the value of this investment increased significantly. This year, Bain Capital has sold all of its shares in Kaihua. SK Hyundai Electronics has not previously disclosed the one-time profit generated from exiting this investment.
After the demand for AI storage chips drove profits to record highs, SK Hynix and Samsung Electronics have been under pressure from shareholders in recent years to increase dividends and the scale of share repurchases. In August this year, SK Hynix announced that it would repurchase and cancel 40 trillion Korean won worth of treasury shares, and plans to use more than 50% of the free cash flow generated from 2025 to 2027 to enhance shareholder returns.
As stock prices have fallen significantly from their highs, the third-quarter earnings announced this week, the performance of HBM business, and the new shareholder return plan will collectively determine whether the market can regain confidence in the growth story of SK Hynix AI.
