SK Hynix's ₩40 Trillion Stock Buyback Fails to Halt Market Plunge Amid Soaring Bond Yields and Chip Investment Concerns

SK Hynix officially announced its plan to acquire and cancel ₩40 trillion worth of its own shares. This is part of a shareholder return policy based on the judgment that the company is undervalued relative to its intrinsic worth. The company also hinted at future additional share buyback and cancellation plans, demonstrating its commitment to enhancing shareholder value.

SK Hynix announced it would return 50% of its free cash flow to shareholders. While this contrasts with SanDisk's announcement last week to return 100% of its free cash flow, it is expected to address existing shareholders' dissatisfaction with quarterly dividends and enhance shareholder value. "SK Hynix's shareholder return announcement just came out. It's about acquiring ₩40 trillion in treasury shares."

The primary reason for today's market plunge was not the possibility of a Federal Reserve interest rate hike, but rather the sharp rise in U.S. 10-year and 30-year Treasury yields and Japanese government bond yields. The bond yield increase, which has been ongoing for some time, sharply worsened market sentiment. Manager Kim Young-min emphasized the impact of rising bond yields, stating, "Why are these soaring bond yields suddenly gaining so much attention? The rise in bond yields, government bond yields, is not something that just happened yesterday or today."

The pharmaceutical and biotech sectors, typically considered most vulnerable during interest rate hikes, showed relative strength today. Alteogen closed in positive territory, and various biotech stocks like Olum Therapeutics and Peptron maintained strong performance throughout the day. Manager Kim Young-min noted, "The most vulnerable pharmaceutical and biotech sector was relatively the strongest today. Alteogen also closed in positive territory, and stocks like Olum Therapeutics and Peptron were very strong throughout the day."

The probability of an interest rate hike at the upcoming September Federal Open Market Committee (FOMC) meeting has fallen below 30%, with a more than 70% chance of a freeze. This is because recent weak employment reports and other deteriorating economic indicators have weakened the Fed's justification for raising rates. Manager Kim Young-min asserted, "In fact, the probability of an interest rate hike at the September Fed FOMC meeting has dropped below 30%. In other words, the probability of a freeze is now over 70%. I'm saying it's 100% a freeze. September is unconditionally a freeze."

Even if the Fed were to raise interest rates as a precautionary measure, forecasts suggest that December is much more likely than October. This would be a preemptive response, aiming to minimize the impact on the market. Manager Kim Young-min stated, "Even if they were to raise interest rates as a precautionary measure, the timing is much more likely to be December than October."

As government bond yields in major countries like the U.S., Japan, and Europe rose in tandem, market sentiment sharply contracted. This can be interpreted as a 'rate tantrum,' a near-panic-like agitation. Manager Kim Young-min explained the market's overreaction, saying, "It's a rate tantrum, a kind of near-panic agitation that has occurred."

With the possibility of an additional interest rate hike by the Bank of Japan (BOJ) in September, concerns about the unwinding of yen carry trades have resurfaced. While a Japanese rate hike would normalize the yen's value, it could mean that yen carry funds deployed in various countries might be liquidated. Manager Kim Young-min explained, "If Japan raises interest rates, the yen's value will normalize, but if the yen's value normalizes, concerns resurface that yen carry funds deployed in various countries could be unwound."

Foreign investors, who net-purchased approximately ₩10 trillion last week, sold ₩4 trillion in a single day today, engaging in large-scale profit-taking. This is analyzed as predominantly short-term profit-taking using the temporary rebound. Manager Kim Young-min conveyed the intensity of foreign selling, stating, "About ₩10 trillion was bought last week, but they dumped ₩4 trillion in just one day today."

Given that 10-year Treasury yields have been on an upward trend all year, the rise in government bond yields is already fundamentally reflected in the market. Since major governments like the U.S. and Japan have implemented expansionary fiscal policies and increased bond issuance, the high level of long-term bond yields is not a new negative factor. Manager Kim Young-min emphasized, "If you look at 10-year Treasury yields, they've been rising all year. Government bond yields, bond yields themselves, have been gradually increasing because governments in various countries have been implementing expansionary fiscal policies and increasing bond issuance. So, the fact that long-term bond yields have risen to very high levels is by no means a new negative factor."

The most decisive reason for the semiconductor sector's slump is the increased investment burden on hyperscaler companies due to rising government bond yields. Global big tech companies need to issue corporate bonds to raise massive capital, and rising government bond yields increase the cost of corporate bond issuance, acting as an investment burden. This situation leads to concerns that hyperscaler investments could be delayed or slow down, fueling sentiment for falling prices and slowing demand among semiconductor companies. Manager Kim Young-min explained, "The most decisive reason, in my opinion, is that after a short-term rebound, the noise about interest rates became an excuse for global capital to take profits, and for hyperscalers, they have to keep issuing corporate bonds anyway. So, rising government bond yields inevitably become a burden."

Delays in data center construction are also cited as a major reason for the semiconductor sector's slump. In places like New York, California, and Texas, public opinion on data center construction is sharply divided, with local residents protesting against rising electricity prices and environmental pollution caused by data centers' massive power consumption. Furthermore, this is turning into a political dispute between the Republican and Democratic parties ahead of the U.S. midterm elections in November, leading to cases of data center construction delays and cancellations. Manager Kim Young-min reported, "In places like New York, California, and Texas, public opinion regarding data center construction is very sharply divided. The more data centers are built, the more electricity prices keep rising."

The argument that hyperscaler companies are halting investments due to bond yield volatility was refuted as lacking a logical basis. Manager Kim Young-min asserted, "The claim that hyperscalers are halting investments due to bond yield volatility is a logic with no connection whatsoever," and assessed the current adjustment in U.S. semiconductor companies as an excessive emotional reaction. He emphasized that U.S. hyperscaler companies' investments are absolutely likely to continue.

No concrete progress on alleviating geopolitical risks, such as peace talks with Iran, has yet been confirmed. Geopolitical risks are only likely to be resolved once official policy changes or concrete actions from the U.S. side are confirmed. Manager Kim Young-min mentioned the uncertainty, stating, "Though such details haven't emerged yet, it could happen today or tomorrow."

Semiconductor process technology is expanding from HBM (High Bandwidth Memory) to HBF (Hybrid Bonding Packaging) to increase data processing capacity and efficiency. This technological shift, combined with Samsung Electronics' P4/P5 and SK Hynix's M15X investments, is expected to provide a rebound opportunity for domestic SoBuJang (materials, parts, and equipment) companies such as HPSP and Tes. Manager Kim Young-min identified Tes as a company to watch, stating, "Tes is one of the companies that can gain the most attention when the expansion from HBM to HBF progresses."

In the past, Korean pharmaceutical and biotech companies plummeted on news of interest rate hikes mainly because they were heavily reliant on capital raising. However, during the first half of this year, many pharmaceutical and biotech companies successfully completed large-scale capital raises, securing funds sufficient for 2-3 years of operations. This change means they have built the fundamental strength to withstand interest rate noise, significantly reducing the pharmaceutical and biotech sector's interest rate sensitivity. Manager Kim Young-min explained, "The reason our pharmaceutical and biotech companies used to plummet whenever interest rates were mentioned was because they were desperate for capital raising, but now the situation is completely different from the past."