Why Micron Stock Suddenly Crashed
Single-stock leveraged ETFs were ticking time bombs. They just blew up in Korea.
By Rich Smith
Did the AI memory chip bubble just burst? Shares of memory specialist Micron (MU 11.05%) collapsed Tuesday morning, falling 10% through 11:05 a.m. ET. And you can trace the origins of this sell-off straight to one place:
South Korea.
Big trouble in little Korea
Home to computer memory giants Samsung and SK Hynix, South Korea is the epicenter of money-making in the memory market. Problem is, gigantic profits earned on memory stocks this year have created a Korean stock market bubble, and it may have just popped.
Korea's Financial Supervisory Service (FSS) approved the creation of 16 "single-stock leveraged ETFs" in late May, all of which track Samsung and SK Hynix with 2x leveraged bets on the stocks' performance. When Samsung stock gains 1%, for example, the ETF that tracks it should gain 2% -- but when Samsung loses 1%, the losses would be magnified just as much.
Think that might make the stock market more volatile? Well, that's exactly what's happening today -- but at least it's happening with good intentions.
FSS Governor Lee Chan-jin says he wishes he had blocked the creation of these ultra-leveraged ETFs, which have tripled in size to more than $9 billion over the past few weeks, but are "high-risk products" bought primarily by individual investors gambling on market momentum. Today's warning attempted to cool things down -- but ignited a sell-off instead.
What this means for Micron
Similar concerns about ETFs leveraged to Micron may be adding to this stock's volatility today. Or investors may simply be questioning how much of the momentum that lifted Micron stock 847% in 52 weeks was investors buying Micron as an alternative to pricey Samsung and SK Hynix shares?
If the price rises in Korea were produced artificially, though -- maybe Micron stock didn't deserve all its gains, either.