Kospi Index, EWY ETF jumps after Micron earnings, but major risks remain

South Korea’s Kospi Index jumped by over 5% on Thursday, and is slowly nearing its all-time high of 9,387. It has soared by 184% in the last 12 months, making it the best-performing global index. Similarly, the iShares MSCI South Korea ETF (EWY) has soared by 171% in the same period and is nearing the all-time high, with its assets rising to $23 billion.

Kospi Index and EWY ETF jumps after Micron earnings

South Korean stocks have staged a strong comeback in the past few days, erasing the losses made on Monday when they dropped by 10%. 

Kospi, and EWY, which tracks the biggest companies in South Korea, rallied after some major news. The first main one came from SK Hynix, the second-biggest South Korean company. 

In a statement on Wednesday, SK Hynix said that it would raise close to $30 billion in the United States. It aims to use these funds to build a new chip manufacturing facility and expanding some of its existing ones. It will list in the Nasdaq. 

Its announcement is a sign that the management believes that the AI boom has more room to run in the near term. This is important as it controls over 50% of the high bandwidth memory (HBM) products. 

The Kospi Index also jumped on Thursday as investors reacted to the latest Micron earnings, which provided a boost to key companies like Samsung, SK Hynix, and SK Square, which jumped by 5.43%, 10.8%, and 3.95%, respectively.

In a statement, the company said that its revenue jumped to $41.5 billion in the third quarter, up by 346% from the same period last year. Its gross margins rose from 74.4% in the second quarter to 84.6% in Q3. 

Micron’s operating revenue rose to $33.3 billion, with its operating margin rising to 80.4%. As a result, the net income jumped to $28.3 billion, giving it a profit margin of over 60%.

Micron boosted guidance, a boost for Samsung and SK Hynix

Most notably, the company boosted its forward guidance, with its management expecting the revenue to hit $50 billion this quarter. These are spectacular numbers as it means that it has become one of the fastest-growing companies in the world. The management believes that the tight demand conditions will last for another two years. 

These numbers are bullish for Samsung Electronics and SK Hynix as it means that their revenues will continue growing. In its recent earnings report, SK Hynix said that its revenue jumped by 198% YoY to 52.58 trillion, a trend that will continue. 

Samsung’s revenue jumped by 70% to 133.9 trillion won, while its operating profit soared by 756% to over 57.2 trillion won. The management also expects that this growth will accelerate in the near term.

Kospi Composite Index faces some major risks

In a recent note, analysts at Goldman Sachs boosted their Kospi Index forecast to 12,000, much higher than where it is today. 

Still, it faces two major risks ahead. First, the index faces a concentration risk as Samsung and SK Hynix account for over 53%. As such, a minor issue in one of these companies will negatively impact the broader index. We saw this risk on Monday when it plunged by 10% amid concerns about the memory industry.

Second, there is a risk that the index has moved to the markup phase of the Wyckoff Theory. In most cases, this phase is usually followed by the distribution and markup phases.

Third, the index has remained substantially higher than its 50-day and 200-day moving averages, putting it at a risk of a mean reversion. This is a situation where investors sell assets to bring them to its historical averages.