Samsung's earnings report is 'perfect', yet its stock plunges 8%; South Korea's stock market crashes 7%, dragging down global markets—Nasdaq futures fall 0.9%, and the yen hovers near 162.

South Korea’s stock market suffered a sharp decline on Tuesday. The KOSPI index plunged over 7% intraday before rebounding slightly; as of the latest quote, its decline had narrowed to 6.6%. Samsung Electronics’ share price fell approximately 8% in a single day, while SK Hynix dropped over 7%. This sell-off quickly spread outward—MSCI’s Asia-Pacific Index declined 1% to 272.78 points, and Nasdaq-100 futures widened their drop to 0.9%. Samsung Earnings: The Better the Numbers, the Harder the Fall Samsung Electronics’ Q2 operating profit surged 19-fold year-on-year to 89.4 trillion won—exceeding analysts’ average forecast of 84.2 trillion won. Revenue doubled to 171 trillion won, also surpassing the market consensus of 169.2 trillion won. This growth was driven by robust demand for high-bandwidth memory (HBM) from AI data centers. However, the market had already priced in this positive news ahead of the earnings release: U.S. semiconductor stocks rose 2.2% the previous day, the S&P 500 gained 0.7%, and the Nasdaq-100 rose 1.3%. With the good news fully priced in, investors took profits. Leveraged ETFs: Cyclical Amplifiers The severity of this South Korean market selloff cannot be understood without considering single-stock leveraged ETFs—a key structural factor. On May 27, South Korea’s financial regulators approved the country’s first batch of single-stock leveraged ETFs, launching 16 products linked to Samsung Electronics and SK Hynix. These ETFs deliver daily returns equal to twice those of their underlying stocks. To maintain their target leverage ratio, they buy during rallies and sell during declines—making them inherently pro-cyclical. The products launched to immediate popularity. According to WallStreetCN, the combined trading volume of 14 such leveraged ETFs reached 212 trillion won (approx. $138.6 billion) in June alone—accounting for 26.6% of total ETF trading volume that month. In a written response last Sunday to opposition lawmaker Park Sung-hoon, the Bank of Korea (BOK) issued a warning, stating these leveraged ETFs “may reinforce one-sided trading behavior, further exacerbating market volatility when investors rush in or withdraw en masse; in the event of a sharp stock price decline, ETF redemptions and portfolio rebalancing will magnify retail investor losses and trigger broader market turmoil.”

The Shanghai Composite Index breaks below 4,000 points! Samsung posts record profits yet its stock plummets—can memory stocks still be held?

Today’s total trading volume across China’s two main exchanges stood at 2.58 trillion yuan—marking the 51st consecutive day exceeding 1 trillion yuan. However, volume has contracted for four straight days: down 16.5% from yesterday and 19.4% below the past-month average. A mere 693 stocks rose, while 4,797 remained flat or declined—reflecting widespread investor pessimism. By sector: the semiconductor supply chain bucked the trend and strengthened. Semiconductor silicon wafer-related stocks were particularly active, with multiple names hitting the daily limit-up. Computing chip stocks fluctuated upward, and advanced packaging concepts also performed well. On the downside: innovative drug stocks wavered downward; non-ferrous metals weakened; and computing infrastructure leasing stocks collectively corrected. 01 Samsung’s Q2 Earnings Preview: Total sales: 171.00 trillion won. Far exceeding the market’s average expectation of 169.23 trillion won—but falling short of bullish institutions’ aggressive forecast of 173.9 trillion won by 3 trillion won. Operating profit: 89.4 trillion won—up 18.1x year-on-year (1,810%) and up 56.21% quarter-on-quarter. This marks the third consecutive quarter of record-high profits. Q2 2026 revenue and profit have already surpassed the combined totals for all three years from 2023 to 2025. Profit significantly exceeded both the market’s average forecast (84.2 trillion won) and optimistic institutional forecasts (87.3 trillion won), beating the entire range of institutional estimates. 02 How Did the Market React to Samsung’s Earnings Release? Samsung Electronics opened sharply lower and continued falling—reaching an intraday low of nearly 9% before closing down ~7.7%. SK Hynix simultaneously plunged over 9%, triggering a broad-based rout across the memory sector. The KOSPI index hit an intraday low of over 8%, triggering two futures circuit-breakers and temporarily halting algorithmic trading. It briefly touched ~7,565 points and at one point fell over 6% to 7,806.25. This wave of panic spilled over into U.S., Hong Kong, and mainland Chinese markets: U.S. memory stocks tumbled after hours; Hong Kong-listed memory shares weakened; and A-share memory module makers—including Jiangbo Long and GigaDevice—also posted steep declines that day. 03 Why Did the Stock Fall Despite Stronger-Than-Expected Revenue and Profit? 1) Post-earnings analysis revealed: All revenue growth stemmed not from higher volumes, but purely from price hikes. Profit breakdown shows the Device Solutions (DS) semiconductor division contributed over 94% of total operating profit—almost entirely generated by memory chips (DRAM/HBM/NAND). Meanwhile, smartphone handsets, display panels, and foundry businesses remain unprofitable, with memory alone propping up corporate earnings. Demand is extremely bifurcated: premium AI HBM chips command high margins and are booked through 2028; yet mainstream consumer DRAM, smartphone NAND, and overall handset shipments remain sluggish—indicating weak end-demand and no ‘volume-and-price expansion’. Should AI server procurement pace slow, profit growth will decelerate sharply each quarter—and given the high base in H2 2026, year-on-year growth will inevitably contract. Samsung’s growth vulnerability is glaringly clear: it relies almost exclusively on memory price increases. Once downstream customers lose pricing power or cut orders, corporate profitability will come under immediate pressure—and its growth ceiling becomes explicitly defined.

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