James Brodie
Head of Learning & Development, Flux
Global Deleveraging Wave Slams Equities as Korea Melts Down and AI Supply Chain Risk Surges
Hedge funds deleverage as Korea plunges 19% in two days, AI supply risk rises, and volatility stays complacent before key US data.
Hedge fund deleveraging yesterday ‘Get me out of everything’. Yesterday saw equities down, bonds down, precious metals down with the safe haven winner the dollar, with it’s biggest 2-day gain in a year.
Later in the day bonds rallied on equities wobbles, and at the end of the day equities reclaimed the 6,775 support. Buying the equity selloff at such a key support on the expectation of a Trump TACO is a MASSIVE risk. The smart money has headed to the sidelines.
While Lloyds of London with 300 years of experience in understanding and pricing risk, is choosing simply to not insure shipping, the complacent risk-taking environment of the VIX at a mere 23 and the MOVE (bond volatility) at 78 is unbelievable.
Kospi down over -12% today (that’s -19.3% in 2 days) the bubble has burst spectacularly. (Chart 1, Bloomberg). But here’s the problem Samsung and SK Hynix together control 67% of global DRAM production and nearly 80% of high-bandwidth memory revenue. HBM is the oxygen of every AI datacentre being built on Earth right now. However South Korea imports 97% of its energy. The majority through the Straits of Hormuz!
Other Asia equity markets are hit hard too: Thailand SET -8%, Indonesia’s IDX -4.3%, Hang Seng -2%.
A reminder that we just had the smallest first two-month range ever for the S&P 500. (Chart 2, Carson & YCharts). Breakouts will be aggressive.
Australian GDP beats expectations +0.8% (est +0.6%).
Data today – US ISM services PMI and ADP.
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