KVIG Informative

SK Hynix increased its quarterly profit sixfold. Its stock still fell 9%. That gap is the story.

South Korea’s KOSPI index sank more than 10% on Tuesday to a three-month low, then fell another 5% on Wednesday after a brief rebound attempt failed. The selloff hit despite SK Hynix reporting a more than sixfold increase in quarterly operating profit, which the company credited to booming demand for AI memory chips. Investors sold anyway, because the earnings missed the lofty expectations Wall Street and the market had already priced in.

Japan’s Nikkei fell 1% Wednesday and is on pace for a monthly drop exceeding 10%. MSCI’s broadest index of Asia-Pacific shares outside Japan slid 1% after shedding 3.6% on Tuesday, putting it on track for an 8% monthly decline. Hong Kong’s Hang Seng bucked the trend, rising 1.5%, while China’s blue-chip index held flat.

Gary Tan, a portfolio manager at Allspring Global Investments, said investors are taking risk off the table ahead of a critical test for AI spending expectations, with the Federal Reserve’s policy meeting sandwiched between earnings from major U.S. technology companies this week. Microsoft and Meta report later Wednesday. Alphabet and Tesla already spooked markets last week with negative cash flow reports.

The competitive picture is shifting under the selloff. Chinese memory chipmaker CXMT raised $8.6 billion in Asia’s largest IPO of the year and saw its Shanghai-listed shares surge 466% on debut, lifting its market capitalization to 3.3 trillion yuan and making it China’s most valuable listed company. Analysts have called the valuation speculative, but the rally signals that investors see a credible domestic alternative to South Korean and American memory suppliers, even accounting for U.S. export controls still in place.

Oil added its own pressure to the mix. Brent crude jumped 3% to $86.80 a barrel Wednesday after CENTCOM reported an intercepted Iranian missile attack on U.S. forces, reigniting inflation concerns just as the Fed prepares to announce its rate decision. Traders were pricing in a 33% chance of a rate hike under new Fed Chair Kevin Warsh, whose no-guidance approach to policy has made the meeting unusually difficult to call. Frank Flight, head of macro strategy at Citadel Securities, said his firm now sees a hike as the more likely outcome, citing the combination of elevated AI capital spending and rising energy prices.

Nasdaq futures were choppy in Asian trading hours, last up 0.5%, while European futures pointed to a higher open. Nick Twidale, chief market strategist at ATFX Global in Sydney, said he expects another volatile session, with both the Fed decision and the deteriorating Middle East picture weighing on sentiment simultaneously.

South Korea posted a record $44.82 billion in monthly chip exports in June. Seven weeks later, its flagship chipmaker’s earnings report triggered the worst single-day drop in the KOSPI in three months. The chips did not stop selling. The market simply stopped believing the growth rate could hold.