Under the "reasonable" valuation models currently popular due to the AI boom, the valuation sizes of Samsung and SK Hynix have already exceeded the cash that the Korean market can provide. Even if your valuation is reasonable, and even if you truly deliver sky-high cash flows in 3 years, the market won't survive until then.

Meanwhile, because the market believes these two companies have huge valuation potential, everyone is selling everything to add leverage, flooding into related companies and sectors. Consequently, other assets in the market will inevitably be sold off at bargain prices or even undervalued, creating a magical siphon effect where the broader index rises while 90% of individual stocks fall. (Of course, if those rising 20% of stocks aren't included in the broad index, the index performance will be even worse.)

It gets worse because the main investors in the market are retail traders, and everyone has maxed out their leverage with no extra cash left to invest in these two companies: once all available cash has been used to buy what's available, buying pressure disappears, leaving only selling pressure. Once buying pressure drops, those with maxed-out leverage will face forced liquidation one by one, triggering a cascade effect.

$XL2CSOPHYNIX(07709.HK) added to watchlist