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Why Micron Stock Dropped Again Today
Key Points
South Korea will limit investing in single-stock leveraged ETFs.
SK Hynix and Samsung are popular leveraged ETFs in Korea.
As their prices fall, Micron stock could follow.
Micron (NASDAQ: MU) stock declined another 6% through 1:30 p.m. ET Wednesday, as new news from South Korea spooked investors in semiconductor stocks:
Korea is curbing investments in leveraged exchange-traded funds (ETFs).
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Image source: Micron.
Risk and reward
The funds in question invest in single stocks and use financial engineering to magnify the returns on those stocks as they trade up and down.
That was all fun and games when semiconductor stocks -- and particularly Korean stocks specializing in manufacturing computer memory -- were mostly going up. Now that SK Hynix (NASDAQ: SKHY), Samsung, and others have rediscovered the law of gravity, Korea is suffering a market rout -- and taking measures to prevent individual investors from losing even more money.
Finance Minister Koo Yun-cheol says Korea will limit retail investment in leveraged ETFs, including by increasing trading costs and capping the percentage of an investor's total portfolio invested in such products. Specific details on the measures to be put in place have not yet been decided, however.
What this means for Micron
The Korean ETFs in question do not invest directly in Micron -- SK Hynix and Samsung being the more popular artificial intelligence chip plays locally. But Korea's move could have an indirect effect on Micron.
By making it harder and more expensive to invest in SK Hynix and Samsung, for example, Korea's actions may depress the share prices of these two stocks, making them look cheaper. When compared to them, competitor Micron stock may start to look relatively expensive -- which could deter U.S. investors from investing in it. As demand for Micron declines, Micron's stock price would logically begin to fall.
In fact, it already is doing just that.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.