Jim Cramer warns of looming 'nightmare' for tech stocks as US and Korean markets now handcuffed to each other

The Korean and U.S. banal markets are progressively moving lockstep, and Jim Cramer is starting to worry.

On July 28, the "Mad Money" big explained connected X that the increasing narration betwixt the Korea Composite Stock Price Index, oregon KOSPI, and the U.S. marketplace could beryllium an "underrated crushed for tech under-performance. Nightmare summation to our markets."

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In the aforesaid X post, Cramer linked to a CNBC study explaining however intimately the 2 markets person go tied done the AI hardware trade.

According to information Rayliant shared with CNBC, the 60-day correlation betwixt KOSPI and the tech-heavy Nasdaq 100 precocious climbed to astir 0.50. The past clip the narration was this beardown was successful 2021.

A large crushed is KOSPI's increasing dependence connected 2 AI chipmakers: SK Hynix and Samsung. Together, the mega-cap companies present relationship for astir 50% of the index, leaving it particularly susceptible to swings successful AI-related sentiment.

U.S. traders got a firsthand look astatine that transportation aft the KOSPI plunged 10.84% during the July 28 trading session, according to Reuters. When U.S. markets opened, the Philadelphia Semiconductor Sector (SOX) fell astir 4.5%, portion AI hardware names similar Micron and Sandisk posted adjacent steeper declines.

Because Seoul's banal marketplace opens astir 13 to 14 hours earlier New York, weakness successful KOSPI has progressively go an aboriginal informing motion for tech-heavy U.S. indexes similar the Nasdaq.

As Phillip Wool of Rayliant Global Advisors told CNBC, "The fortunes of U.S. tech stocks and Korean tech stocks are progressively being driven by a communal underlying factor, which is sentiment toward the AI hardware trade."

By the adjacent of trading connected July 28, the KOSPI had fallen to astir 6,023, down sharply from its June precocious of astir 9,114.

Leverage leads to larger AI losses

It's not conscionable the increasing reliance connected AI superior spending that has investors disquieted astir KOSPI's influence. As South Korea's banal marketplace surged alongside the hyperscaler buildout, it besides attracted a question of leverage traders looking to amplify their returns.

CNBC reported that Korean investors person poured $9.4 cardinal into single-stock leveraged ETFs since they debuted successful May. While those funds helped boost gains successful companies similar Samsung and SK Hynix, they're besides intensifying losses arsenic the marketplace tumbles.