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In a Thursday report titled “Memory – Winter is Coming,” investment bank Morgan Stanley adjusted its advice on SK Hynix stock from expanding to reducing holdings and sharply downgraded its target price from 156,000 won (US$134.05) to 80,000 won (US$68.74).

As analysts predict a protracted chip shortage, American semiconductor makers saw their stocks rally. That’s prompting curiosity about what will happen this week in South Korea’s financial market, which was roiled when foreigners dumped holdings in semiconductor stocks.

Micron Technology’s stock ended the day on Friday at US$70.92 on the Nasdaq stock exchange, up 0.95%, after four consecutive days of declines. Micron Technology is the third biggest dynamic random access memory (DRAM) chips manufacturer, after South Korean companies Samsung Electronics and SK Hynix.

The Philadelphia Semiconductor Index, composed of chipmakers listed on American stock exchanges, rose 0.67% in its first rally in seven days of trading.

According to Mirae Asset Securities, IT-focused media in the US reported on the same day that the chip shortage is worsening overall and wouldn’t be resolved until the fourth quarter of next year.

“The semiconductor lead time — how long it takes for a chip to be delivered following an order — reached 20.2 weeks early last week, which is the longest it’s ever been. That eased concerns raised in some quarters about stagnant demand and brought in buyers seeking to ‘buy the dip’ in chipmaker stocks,” concluded Suh Sang-yeong, an analyst for Mirae Asset Securities.

Concerns about worsening conditions in the memory semiconductor sector rattled the South Korean financial market last week, with the benchmark KOSPI falling to 3,100 and the dollar-won exchange rate spiking to 1,170 won.

According to data from the Korea Exchange, foreigners sold off a total of 7.93 trillion won (US$6.81 billion) in stocks from Samsung Electronics (5.86 trillion won, or US$5.04 billion, including preferred stock) and SK Hynix (2.66 trillion won, or US$2.28 billion) over the past seven days of trading from Aug. 5 to Friday.

That was 1 trillion won more than all purchases on the KOSPI over the same period (6.92 trillion won, or US$5.95 billion), implying that foreigners were buying stocks in other industries. That overseas capital shifted to secondary battery makers, including Samsung SDI and LG Chem.

In short, foreign investors weren’t trying to sell off stock in Korea but just in chipmakers.

That said, Samsung Electronics (21.94%, including preferred stock) and SK Hynix (3.23%) accounted for 25.17% of the KOSPI’s total market capitalization as of Friday. While the two companies’ share has declined from the beginning of the year (30.53%), they still hugely influence the index.

Chipmaker stocks in the US have also tanked during the same period, but Apple and Microsoft, the top two stocks in terms of market capitalization, stayed strong, driving the index to a new height.

American chipmakers’ stock rally is expected to rekindle the debate about the memory sector.

Taiwanese market research firm TrendForce projects that the price of DRAM for personal computers will fall by up to 5% in the fourth quarter. TrendForce noted that computer manufacturers have boosted inventory over fears of a supply shortfall in memory chips, but the normalization of economic activity will depress demand for PC DRAM.

In a Thursday report titled “Memory – Winter is Coming,” investment bank Morgan Stanley adjusted its advice on SK Hynix stock from expanding to reducing holdings and sharply downgraded its target price from 156,000 won (US$134.05) to 80,000 won (US$68.74). The bank said a supply glut would become apparent in the memory sector as supply chases demand.

Morgan Stanley also lowered its target for Samsung Electronics from 98,000 won (US$84.21) to 89,000 won (US$76.48), while calling for caution when investing in South Korean tech stocks.

Morgan Stanley’s predictions suggest that the pain in the semiconductor industry has only just begun.

In contrast, many South Korean financial analysts think that fears about the memory sector are overblown.

“PC chips only represent 15% of DRAM demand. Since inventory isn’t increasing at server (30%) and mobile (40%) firms, there’s little chance of a sudden glut in supply,” said Kim Dong-won, an analyst with KB Securities.

By Han Gwang-deok, finance correspondent

Please direct comments or questions to [english@hani.co.kr]