Korean retail investors net purchased $675.54 million in SK Hynix American Depositary Receipts (ADR) from May 10 to May 24 following the Nasdaq listing on May 10. The buying surge is driven by expectations of sustained premium and smaller investment accessibility. Despite a 22% capital gains tax on annual profits exceeding 2.5 million won for ADR trades — compared to tax-exempt domestic stock transactions — investors are attracted to the ADR's 28.3% premium as of May 24 and the ability to purchase shares at one-tenth the cost of the domestic listing.
Korean Investors Net Purchase $675.54 Million in SK Hynix ADR from May 10 to May 24
According to Korea Securities Depository's Seibro data, Korean investors net purchased $155.16 million (approximately 226.4 billion won) in SK Hynix ADR during the week of May 18 to May 24. This ranked first among all US stocks purchased by Korean investors during that period. Expanding the timeframe to May 10 — when SK Hynix ADR was listed on Nasdaq — total net purchases reached $675.54 million (approximately 991.2 billion won).
SK Hynix ADR Trades at 28.3% Premium with 22% Tax on Gains Exceeding 2.5 Million Won
SK Hynix ADR currently trades at a premium compared to the domestic stock. On May 24, the ADR closed at $154.57 per share (approximately 225,734 won). Applying the 10-to-1 exchange ratio and converting to Korean won yields 2,257,340 won per share — a 28.3% premium over the domestic SK Hynix stock price of 1.759 million won.
From a tax perspective, individual investors face disadvantages trading ADR. Domestic SK Hynix stock is exempt from capital gains tax. In contrast, ADR is classified as a foreign stock, subjecting annual profits exceeding 2.5 million won to a 22% capital gains tax. Exchange rate fluctuation risk also applies.
A securities firm official stated, "There is a possibility that the premium will be maintained at a slightly higher level as passive funds such as ADR-based ETFs flow in, and because TSMC's ADR premium was also maintained at a high level, there will be expectations for that." The official added, "The cost of purchasing one share of ADR is about one-tenth that of the domestic stock, so there is an aspect that makes it easier to access with a small amount."
Mutual Conversion Starts May 29 with Administrative Friction Expected
Mutual conversion between SK Hynix domestic stock and ADR is scheduled to begin on May 29. However, market forecasts indicate that immediate premium resolution is unlikely. Lee Jung-bin, a researcher at Shinhan Investment & Securities, explained, "It is not easy for the premium to be reduced immediately because there are conversion procedures and administrative friction in mutual conversion." Lee continued, "There is room for additional issuance based on registration standards, but actual ADR supply depends on the depository institution's operating procedures and approval conditions. May 29 is the first turning point to confirm the actual supply response, rather than a time to confirm the normalization of the premium."
WSJ Columnist Warns of Excessive Premium Risk on May 26
Overseas observers have expressed concern over the excessive premium on SK Hynix ADR. On May 26 (local time), James McIntosh, senior markets columnist at The Wall Street Journal (WSJ), wrote in a column, "The huge ADR premium formed compared to SK Hynix's Korean domestic stock is something that should not happen in the market." He stated, "ADR buyers will be fine if the Korean stock catches up with the gap and the premium decreases." However, McIntosh warned, "They will be hit if the company uses the US stock like a piggy bank (to raise funds), and will be hit even harder if semiconductor stocks plummet in both Korea and the US and the premium disappears."
FAQ
What did Korean investors purchase in SK Hynix ADR from May 10 to May 24?
Korean retail investors net purchased $675.54 million (approximately 991.2 billion won) in SK Hynix ADR from May 10 to May 24. During the week of May 18 to May 24 alone, net purchases totaled $155.16 million (approximately 226.4 billion won), ranking first among US stocks purchased by Korean investors.
Why are Korean investors buying SK Hynix ADR despite higher taxes?
Investors are attracted to the ADR's 28.3% premium over the domestic stock as of May 24 and the ability to purchase shares at one-tenth the cost of the domestic listing. A securities firm official cited expectations that passive funds and the precedent of TSMC's sustained ADR premium will support continued premium levels, alongside easier small-lot access.
What warning did the WSJ issue about SK Hynix ADR premium on May 26?
On May 26 (local time), WSJ senior markets columnist James McIntosh stated that the excessive ADR premium "should not happen in the market." He warned that ADR buyers face risks if the company uses the US stock to raise funds or if semiconductor stocks crash in both Korea and the US, causing the premium to disappear.
