Global chip stocks rebound after worst July since 2008

Semiconductor stocks worldwide endured their most punishing month in nearly two decades during July, with major chip indexes posting losses not seen since the 2008 financial crisis, even as the industry reported record-breaking revenue — a disconnect that has left investors divided over what comes next.

The Philadelphia Semiconductor Index tumbled 20.6% in July, its weakest month since the 2008 financial crisis, according to Deutsche Bank. South Korea's Kospi posted a 22% monthly loss, its steepest decline since the global financial crisis, while SK Hynix ↗ 8.17% fell 35% and Samsung Electronics dropped 21% during the period. The US-focused SOXX index fell 7.4% in its final week alone.ad-hoc-news+1

A Leverage-Fueled Unraveling

The selloff was driven less by deteriorating fundamentals than by a violent unwinding of leveraged positions. Assets in leveraged exchange-traded funds tied to Samsung and SK Hynix collapsed from $50 billion in late June to $17 billion by late July, according to JP Morgan research.freemalaysiatoday

"This was a leverage event, not an earnings event," said Steve Lawrence, CIO of Balfour Capital Group. Goldman Sachs The Goldman Sachs Group, Inc. ↗ 2.52% reported that hedge funds dumped semiconductor stocks over July more aggressively than almost any other sector. The forced selling of shares at hedge fund Situational Awareness further aggravated the decline before Citadel bought the bulk of the fund's remaining equities book.ad-hoc-news+1

Samsung had reported a 250-fold surge in semiconductor profits during the period, and global semiconductor sales hit an all-time high of $120.6 billion in May, up 104% year-over-year. The South Korean finance minister publicly apologized for introducing single-stock leveraged ETFs without careful consideration.freemalaysiatoday+1

Early August Stabilization

Markets began steadying in early August. On Saturday, August 1, foreigners turned net buyers of 7.2 trillion won ($5 billion) in South Korean stocks — more than double the previous one-day record — helping the Kospi surge 17.9%. By Tuesday, Asian markets traded mostly higher as investors cautiously returned to technology shares, with the CSI 300 rising 1.3% and the Kospi rebounding 1.5%.investing+1

Morgan Stanley has upgraded Korean equities to "Overweight," seeing 36% upside potential, while UBS initiated coverage of SK Hynix with a "Buy" rating. Citic Securities said mainland Chinese tech shares had merely undergone a correction rather than a deleveraging shock, forecasting a rebound in August.scmp+1

Risks Remain

JP Morgan analysts said leveraged ETF unwinding appeared complete and hedge funds were roughly 90% through deleveraging. Yet Societe Generale Société Générale S.A. cautioned that "the AI trade is maturing" and investor focus was shifting toward the sustainability of margins beyond 2026. Citi estimated total losses for retail investors in leveraged ETFs at around $38.7 billion.tbsnews+1

Attention now turns to earnings from AMD Advanced Micro Devices, Inc. ↗ 7.00% on Tuesday, along with U.S. labor-market data culminating in Friday's nonfarm payrolls report, which investors will watch for clues on the outlook for Federal Reserve policy and artificial intelligence spending.investing+1