South Korea's AI bubble just crashed

All right, there's a lot going on right now, and I want to keep you informed. These are the headlines. AI stock sell-off deepens as investors dump chip makers. And this is the question we're having, basically, market crash here in Korea. That's where I'm at. How bad will this get in the USA? That's what we're all watching, like, literally right now, live. Stock market today, chip stocks under pressure as AI worries push investors to other sectors. Remember, we're still talking about circular financing and such. And then you got chip route deepens on circular funding. China competition fears. Okay, so let's take a look at what people are saying. And it's actually quite whacked out. You got to see it for yourself. The very popular song of Tracy Chapman, similar name. This market is moving quicker than a fast car, getting these triggers. Another day, so I'm losing count now of the number of days this month that we've seen either the KOSDAQ or the KOSPI just get halted because of just how volatile things have been. But yes, that's where we are currently. So we'll revisit, of course, what goes on. So you can actually see it there. It says KOSPI trading halted for 20 minutes. So that's the Korean market. Basically, the selloff was like intense, started it opening and just kept selling off. So there's that. And this is what a market crash looks like where you just see like these things going down crazy. It's been multiple days this month where they'll freeze trading for a couple of minutes and then resume. A semiconductor selloff in Asia this morning sparked, it appears, by a report in the information that China has been developing its own lithography machine. This is really, really very, very interesting. Trust me, bear with me. South Korean heavyweights SK Hynix and Samsung Electronics are both down more than 10 percent. You get it right there. They got the chart up there. And long story short, if China comes in cheaper, more efficient, all these things, it destroys the business model of multiple countries and multiple companies in multiple countries, I should say. Big names in the region such as Samsung, Tokyo Electron and TSMC also deeply in the red. Now, trading on South Korea's benchmark KOSPI was paused temporarily by sliding eight percent. Shares of SK Hynix have plunged 45 percent from their all time high in June as concerns about overcrowding, capex and competition set in. But here's the thing. Here's the thing. I've just said you fell 45 percent from those levels as well. But the fact of the matter is the ride is two way. Ride is two. Look, I want to show you something. This is the KOSPI year to date. Have a look at this. What do you see? Yeah, you see a chart that goes up and then goes down and is still up. Forty three percent year to date. So if you are an owner. And people are kind of laughing about this because it's just it's trading like crypto. And it's been like this all year, actually. And it's interesting to see the international press now picking up what's going on in the Korean market. They call it South Korea for a reason today. Headed south substantially down 10 percent on the KOSPI index. Some of the big moves we're seeing in that market down double digits. SK Hynix, Samsung Electronics, some of the other big plays. SK Electromechanics, I think, is coming up on your screens as well. Can we get that up, guys, if we can, just to give you a sense of some of the big movers there. Samsung Electromechanics, rather, my mistake, 17 percent. SK Square down about 15 percent. You get the idea. And you have to remember this is in a day. That's why it's crazy. Now, I want to show you some stuff, too. This is what local Koreans here in Korea are sharing on social media. It's actually pretty funny when you see this stuff. So basically, this is like, you know, a guy asking his friend, hey, what's going on? And the sheets all, you know, wet from crying. They showed the headlines of the market and stuff like that. People have a sense of humor about this stuff. But yeah, people are losing. It's true. But again, our markets have been like like crypto effectively. Here's another one. Someone's posting that, you know, the market's down 10 percent. Some stocks are down 12 percent, you know, etc. And that's his lunch for the day. All you can afford is rice and dried seaweed. It's funny for us here in Korea. You get the joke like like you're winning, you're winning, you're cheering. Ten seconds later, you're you're losing. Here's another one. This is more of a joke where you're trying to do CPR on the stock market. Right. So first, you're trying to give it mouth to mouth to get the stock to go up. Now you're giving me like CPR for a joke. But essentially, so many people are in the markets right now. Everyone's watching it. So they're putting all these sort of things on here. Then you go to the KOSPI building and start praying for it to go up. Again, another thing. Or you have people saying, you know, I bought Samsung at 357 and I think it's now trading like it to something. So. So there's that. So I give you a little flavor of what's going on. This is then our local news. Let me show you here. Yeah, I just want you to see what it looks like. So for us, blue is down. Red is up, blue is down. So it's different than U.S. market where it's green is up, red is down. So basically everything's blue. Another way to think about it is sometimes people ask me, red is good luck in Asia. So red is up, blue is down. You can think about it as being like hot and cold kind of thing. It's another way, easier way to think about it. But that's sort of how our news looks like. Here's more. And if you heard it, they said it a couple of times, circuit breaker, right? So that's sort of when the markets crash too far and they freeze trading. And again, it's all blue on the screen. So just transport this to the American market. Just imagine you turn on the TV and the people at the market are like, dude, everything's red. Everything's down double digits. You'd be kind of freaking out too. That's why it is true, right? It's true. People are losing it. That's totally true. You also have to get a sense of humor about it too, because the market's been up like ludicrous amounts. It's been unbelievable. I mean, that's been on the news also as well as like, how high is this thing going to go? It's kind of like, you know, is Bitcoin going to hit a hundred thousand or is Dogecoin hit a dollar? It's kind of, there's a gambling aspect to it also. There's a lot of leverage in the market as well. So they're talking about sidecars and circuit breaker. If I remember correctly, I think sidecar is like a five minute halt, circuit breaker is like a 20 minute halt. I want to address South Korea, just because we went through this very dramatic parabolic move to the upside and downside and really the level of volatility. What do you think that does to the market psyche? Looking at South Korea, sure, it's a great AI story, picks and shovels story, but do you think the global market- And she's laughing too. It's hard to explain. I mean, again, to us, it feels like Dogecoin, crypto, like how crazy it's going. If you guys ever been in the market in these sort of volatile things where you wake up one day and it's like, wait, I am like 20% richer. It doesn't feel real because it's so ludicrous. And a lot of it's based on leverage. It's just so easy to borrow money these days, which I'm sure you guys have understand, there's all sorts of repercussions with that. I think that the sell side is really mapping out here today. I think most of the sell side have chimed in and said, look, when it comes to that technological gap between China and Western names right now, it's still quite wide, right? Masahiro, our BI analyst is saying it's seven to 10 years it would take to actually close it at this point. So maybe right now markets are going ahead of it. COSDAQ has now triggered the circuit breaker, trading halted after that index fell by 8% as well. So trading in the South Korea's COSDAQ now also in a trading halt. Well, let's get more details now on those stories. And so the couple of things that people are talking about, okay, so what's going on in China, they got this new company, they got this new tech, how far behind, you know, be it Korea or the American companies or Taiwan, are they? Are they going to leapfrog in a hurry? And it took some people by surprise all of a sudden. And there's actually here, our news is a little bit different than in USA. Some people have been talking about, hey, China has been poaching a lot of Korean employees from Samsung or otherwise. That's been going on a long time, actually. They'll give you huge bonuses to come over, right? And then, you know, pick your brain effectively. And then, you know, you get these crazy leapfrogs. So he's fueling this AI angst across Asia. Now China correspondent Min Min Lo joins us from Hong Kong along with Asia equities reporter Winnie Hsu. So Min Min, let's start with you. What do we know about the scale at which China can produce DUV machines? Because this has been one of the catalysts that's seen the sell off today. That's right. And this is according to the information's reporting. And according to their sources, China is planning to produce five of these machines this year and 20 next year. This is a particular company that is based in Shanghai. It has not been named by the information, but it's a homegrown company that is gathering expertise from other Chinese firms, including a state-backed startup as well. And according to the information, most of the components of these DUV machines are locally sourced except for some key components that are coming from Japan. So this is sparking the sell off because we know that ASML has been a major player, in fact, very dominant, one of the few monopolies out there in this sector. And ASML has been prevented from selling its most advanced machines to China. Now, mind you, these DUV machines are not top of the range. The most advanced machines that ASML can sell are the EUV, extreme ultraviolet lithography machines. DUV is deep ultraviolet lithography machines. So it's slightly less advanced, but still. See, but that's the key, though, to where if China can develop really good AI chatbots and agents and all this, AI technology, and they're doing it using equipments and machines that produce slightly slower, if you want to say inferior, whatever you want to say it, but they've learned to be more efficient, right? And then that really ruptures the other markets around the world. So that's why everyone's watching this thing. And it's really fascinating to hear the stuff of like, hey, they got, what was it, eight machines, 20 more machines coming. And if you know anything about China, they don't necessarily have to source from other countries. They said some of the stuff did come from Japan, but the USA is out of the loop on this stuff. And this is why, like, when you see this panic in Korea, because remember, Korea is affected by this stuff, will it then spread to the USA? I think it totally is going to. The Americans are going to try to downplay this, say, oh, no, we got the best market in the world. We have Trumpers. He's our best president. We got Elon Musk. Oh, my God, it's awesome. You're going to have space centers, space, data centers in space. But, but that's for you to determine what you think. All right. Let's listen to more here. Weighing on our confidence around chip stocks, Neil, and not just chip stocks, but those companies that make the equipment that makes the chips. Let's go there first, because we do seem to be worried about Chinese competition in lithography. To some degree, this was Europe's story yesterday. ASML was considerably weaker on this story in yesterday's session. But how should we think about Chinese competition right now? I think the issue on Chinese competition is concerning to many players in the market because, of course, we've had lots of IP restrictions on technology going into China. And yet, somehow, China seems to have gone up the technology curve substantially in terms of the ability to produce chips, the ability to create AI frontier models, and potentially now even into chip equipment, which, of course, ASML is really the monopoly for both what they call deep ultraviolet, DUV, and EUV, extreme ultraviolet machine. This is really taking a lot of people by surprise. And again, China's breaking up monopolies here. This is going to be an investor person saying, well, let's see what they say, how they evaluate the situation. How concerned are you then about the tech dynamics? Do we set aside what we see on the Cosby and say that's a very different market? It's very volatile. It's very influenced by just two companies. And they have a fairly volatile track record recently. Do we set that aside as being different, or are you overall concerned about what we see in the tech landscape? So there are idiosyncratic factors that are driving the Korean stock market in particular, most notably the ample leverage in the system. And yes, we are seeing a high degree of correlation with the US Nasdaq. But I think at this juncture, we're not overly concerned about drawdowns in the tech space. And that's largely because of the robust. There's questions around the return on investment from a lot of this capex spend, but we're not yet seeing signs of cracks there. And even if we look at margin expansion, really, it's being driven by tech. Okay, so I think the English term in America, you guys would say cappin, is that the right word? Or frontin? Is that the right word? So I think she's totally just making crap up. But point being, though, is they got to be concerned. They got to be concerned about circular financing. You got to be concerned. Is China going to be a major challenge? You also got to be concerned is, is there no return on investment on all this cash burn on all these companies? She was talking about how margins are great or whatever. If you guys pay attention to the Tesla earnings, right? This is why I crack this stuff. It was not great. I mean, their margins are absolutely getting crushed. They got nothing new on the horizon. And then they're expected to spend a bunch of money on AI. And then Google, I think it was the first time since 2004 that they went cash flow negative. That's Google. Google is supposed to be the cash printing machine. And so that's actually really concerning. You have basically major bubbles in Korea and USA. The Korean bubble is fueled by the Americans. And all this is based on leverage and debt. And then you got China coming in more efficient and cheaper. And they're just coming out of the I guess you could argue it's like the kind of sputnik kind of moment and like, hey, what's that satellite doing overhead? So that's what's going on. We're going to see how this plays out. But again, we're crashing here in Korea. And will it spread to the US? That's my thoughts. I'd like to hear yours. And I'll catch you on the next video.