The signs of a mania in Asia are even worse than you think.
For instance, the CSOP SK Hynix Daily 2x Leveraged ETF was launched in Hong Kong in October. It’s now the largest ETF in the entire country, with more than $18 billion AUM and tracks memory-maker SK hynix.
To be fair, it’s been a great investment despite the decay of it being a 2x leveraged product.
Csop Sk Hynix Daily 2x 7709
The problem is that it signals that speculation is out of control. Aside from being leveraged itself, we wrote about the proliferation of margin loans and bank loans for stock trading in Taiwan yesterday.
Now I recognize these are two different places and markets but the common ground is that traders are betting heavily on memory chip names. In South Korea it’s even worse as endless stories of degen trades leak out. It’s the Bill Hwang-ification of the entire market. If you don’t remember that episode, here is how it ended:
VIAC in the Bill Huang squeeze
When the leveraged trades unwind, it can be violent. We are getting a taste of that in gold, oil and bitcoin today but it wouldn’t take much for it to spread to AI. In fact, I think it’s inevitable as eventually there will be memory chip fabs coming online.
I wrote yesterday about how memory stocks have had one of the all-time great runs and why this could be the end. Now it probably won’t be because this kind of nervousness doesn’t usually precede a top but the stakes for today’s Micron’s earnings report are huge. Greg wrote a preview of what to expect today.
Aside from that, there are no signs of a change in the mood around leverage. According to Bloomberg Intelligence, more than 600 ETFs have been launched globally over the past six months, the fastest pace on record — and remarkably, nearly 35% are leveraged products
It’s obvious how this ends. Even if you’re bullish, this is the kind of market where you need to keep one foot near the exit door.