An advertisement for SK Hynix's American depositary receipt listing is displayed at Times Square in New York. [Bloomberg]
An advertisement for SK Hynix's American depositary receipt listing is displayed at Times Square in New York. [Bloomberg]

Analysts have warned that price distortions could emerge in certain corners of the US market — particularly semiconductors and leveraged ETFs — as Korean retail investors shift money abroad to sidestep a domestic market correction.

US broadcaster CNBC ran a report Monday headlined "What Korean stock investors are doing in the US market: Absolutely insane," noting that while foreign investors have been returning to Korean equities, Korean retail investors have been rushing in the opposite direction, fleeing the correction for US markets.

Citing data from the Korea Securities Depository, the report said Korean investors net purchased about $4.5 billion worth of US shares in July alone, of which roughly $840 million went into American depositary receipts of chipmaker SK Hynix listed in the United States.

SK Hynix ADRs were the second-most net-purchased US security by Korean retail investors during the month.

Owen Lamont, a senior vice president at US asset manager Acadian, said the behavior made no sense. "It's really crazy. There's no reason for a Korean investor to buy the ADR of a Korean company in the United States," he said, adding that the ADRs were trading at a roughly 10 percent premium to the underlying shares and with greater volatility.

Lamont said the price gap between the ordinary shares and the ADRs was an anomaly that could serve as a warning sign of speculative excess, calling it a "symptom of a bubble." He noted that similar pricing divergences appeared among Taiwanese and Indian companies during the dot-com bubble collapse.

The report also highlighted that Korean retail investors' shift from the domestic market to the US has not dampened their bullish outlook on AI and semiconductors — they have simply changed the venue.

Four of the 10 most net-purchased US securities by Korean retail investors in July were leveraged products, including SOXL, which tracks three times the daily return of the semiconductor index; QLD, which tracks twice the daily return of the NASDAQ 100; and TQQQ, which tracks three times that index.

Philip Wool, head of investment solutions at Rayliant Global Advisors, said the pattern was contradictory. "The irony, if you look at the data closely, is that most of what they're buying is tied to the same AI hardware theme as what was being sold off in their home market," he said.

Yoon Jeong-in, chief executive of Fibonacci Asset Management, said the investors had not necessarily reduced their exposure to the AI theme. "They haven't really cut their allocation to AI. They've just changed the geographic vehicle expressing the same investment outlook," Yoon said, pointing to the possibility that some investors who had taken losses on Korean semiconductor stocks or leveraged ETFs were rotating into US AI-related shares.

Lamont said last month's volume of US share purchases by Korean investors was "strong, but not unprecedented," adding that he found it "quite interesting that buying of US stocks actually increased while the Korean market was falling sharply."

He added, however, that the inflow of Korean retail money remained negligible relative to the overall scale of US market trading, making it difficult for such flows to move markets broadly.

Still, he cautioned that significant distortions could develop in specific stocks or pockets of the market where Korean investors concentrate their bets — pointing to the late-2024 episode in which a rush by Korean investors into so-called quantum computing stocks sent prices surging.

Lamont also said the spread of leveraged ETFs across South Korea, Hong Kong and the United States risked amplifying market swings by adding volatility to the broader market.


jshan@heraldcorp.com