A 10% overnight rout in Korea's KOSPI is dragging US chips lower — but that index is dominated by just two semiconductor names, and its five-year gain came entirely in the last eighteen months.
US chips are down hard in today's pre-market, driven largely by a 10% decline in Korea's KOSPI index overnight. Reports say that a circuit-breaker had to be deployed during the session. Dominated as it is by semiconductor names, the KOSPI's rout casts a shadow on semis here in the States.
But let's look more closely at the KOSPI. Not only is this index dominated by semis, more specifically, it is dominated by just two (2) large semiconductor companies, namely Samsung Electronics and SK Hynix. These two combined account for about 40% of the KOSPI market cap. When either of them catches a cold, the KOSPI catches a fever. Over the past 5 years, the gain in the KOSPI has come entirely in the last 18 months. Even after last night's sell-off, that parabolic run still notches an increase of 139%.
Reasonable minds can disagree about how much of the recent decline is reflective of the mechanics of an overbought market and how much is the result of growing competition from China. However, reasonable minds probably can't find much disagreement about the prospect of continued difficulties in the Korean market.
So, where does this leave us, here in the US? Our biggest tech names are pressed into seemingly bargain territory, and they're still falling. INTC was down $5 in the earlier premarket. UCTT, ACMR, and KLIC were all trading 6% lower. The good news is that the call premiums on semis tend to be generous. Somewhat aggressive covered call writing may help holders of that sector weather the KOSPI storm. No one can say for sure how long the sell-off lasts, but in the months ahead it won't feel good to have sold at the lows.
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