SK Hynix U.S. IPO Could Boost This ETF

Investors are just a few weeks removed from digesting the SpaceX (SPCX) initial public offering (IPO), but another big IPO is coming on Friday, July 10, in the form of South Korean memory semiconductor giant SK Hynix.

To be clear, that chip stock already trades in its home country. Now it’s reportedly looking to raise $26.5 billion in U.S. share sales that will see the stock trade on the Nasdaq under ticker “SKHY.” The company’s U.S. listing could be an ideal time for tactical short-term traders to consider the Direxion Daily South Korea Bull 3X Shares (KORU).

The reasoning is simple. KORU attempts to deliver 300% of the daily returns of the MSCI Korea 25/50 Index. That index allocates 19% of its weight to SK Hynix, making the stock the gauge’s second-largest holding, behind only Samsung.

How SK Hynix Could Affect KORU

As noted above, KORU is a leveraged ETF that should be treated as short-term instrument. KORU and its brethren are often useful around short-term events, of which Friday’s SK Hynix U.S. listing is certainly one. With those disclaimers out of the way, traders mulling KORU have some important points to consider.

Namely, SK Hynix is up eight-fold in 12 months, but off 25% in less than two weeks. That puts it in a bear market. Still, U.S. demand for the stock is high, with some reports suggesting, as of Thursday, that offering is 7x oversubscribed.

“For investors in SK Hynix and other memory stocks, the tailwind of intense demand for products that led to steep price increases and big profits is turning into a headwind, amid warnings about a coming supply surge in chip production that will alleviate shortages and likely drive prices down,” noted Morningstar’s Tom Lauricella.

KORU could be in focus on Friday due to the sheer size of the SK Hynix IPO. It’s the second-largest behind SpaceX and is the largest U.S. share sale by a foreign company, eclipsing Alibaba’s (BABA) 2014 IPO, according to Lauricella. Speaking of size…

“SK Hynix is the second-largest memory semiconductor manufacturer in the world. Recently, the firm has had particular success with high-bandwidth memory chips used in AI servers. Like other companies specializing in AI hardware, huge demand has created bottlenecks and resulted in surging prices for SK Hynix’s products,” observed the Morningstar analyst.

KORU could be useful on Friday, but memory is a notoriously cyclical, volatile corner of the semiconductor market. That said, it’s best to not make a long-term commitment to this leveraged ETF.

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