The premium of SK Hynix’s American depositary receipts (ADRs) over its South Korea-listed shares surged to more than 50% just three trading days after their Wall Street debut, drawing comparisons with TSMC’s ADR premium, which soared to nearly 100% during the dot-com bubble in the early 2000s.
SK Hynix ADRs jumped 27% on Tuesday, recovering all losses recorded during a 9% crash in the previous session when a massive selloff in South Korea’s stock market bled into Wall Street. This pushed the ADRs’ premium over the South Korean shares to 51%, according to data compiled by Bloomberg, far above the 3% gap they priced at last week in the $26.5 billion offering.
SK Hynix ADR surge on Tuesday came as related options began trading on US exchanges, giving traders in the world’s largest derivatives market easier access. SK Hynix shares rose as much as 13% in South Korea on Wednesday, following the New York gains.
SK Hynix debut on Wall Street
The South Korean chipmaker’s American Depositary Receipts made their Nasdaq debut last Friday. SK Hynix had priced the ADRs at $149 each, which opened at $170. The company had raised more than $26 billion earlier this month through its US listing, selling ADRs after its Korean shares had more than tripled this year. The company has been one of the biggest global beneficiaries of the artificial intelligence boom because of its leadership in high-bandwidth memory chips, which are used in AI data centres.
Also read: SK Hynix sinks after Nasdaq debut amid profit-taking, easing earnings optimism
However, the ADRs now trade at a sharp premium to the South Korean shares. This comes as the US listing has eased global investor access to key AI memory chipmaker SK Hynix, while taking some steam out of the blistering rally in its Korean stock. The extent to which the Seoul-listed shares can be converted into ADRs has been a key uncertainty, inhibiting flows that typically keep prices closer, according to traders cited by Bloomberg.
“Actual arbitrage is completely frozen because the underlying new common shares do not list in Korea until July 29, the regulatory conversion pipeline is locked tight, sourcing shares to borrow in order to short the ADR is nearly impossible,” the report quoted Sanghyun Park, founder of Clepsydra Capital, a firm specializing in special-situations analysis.
Each SK Hynix ADR is equivalent to a 10th of a common share, according to a filing with the US Securities and Exchange Commission. According to a filing earlier this month, holders of the US instruments will be able to cancel them and receive the respective number of Seoul-traded shares.
Why SK Hynix ADR surge reminds us of the dotcom bubble
A similar large premium for ADRs over Asian shares was seen for Taiwan Semiconductor Manufacturing Company during the infamous dot com bubble. Its ADR premium surged massively to cross 100% over the Taiwanese shares in the early 2000s but has since retreated, to an average of 13% over the past five years, data compiled by Bloomberg shows.
This comes amid a recent selloff in South Korea’s stock market comes after a skyrocketing rally in tech stocks that pushed Kospi sharply higher. Just a year ago, South Korea’s President Lee Jae Myung set a 5,000-point target for the Kospi, which seemed wildly ambitious. Little did investors know that the Asian market is going to blast past 9,000 driven by an AI-fuelled surge. Lee meanwhile insisted that South Korean stocks were still cheap.
The Kospi’s performance is closely tied to two chip giants Samsung Electronics and SK Hynix, which together account for nearly half of the index’s weight and have contributed roughly two-thirds of its gains this year. As these stocks crashed, so did Kospi.
South Korea’s Finance Minister Koo Yun-cheol last week said authorities would closely monitor risks that could further increase stock market volatility. The finance ministry said market swings have intensified due to foreign and institutional investor profit-taking, portfolio rebalancing, and changing expectations around the global artificial intelligence sector. The comments came after Koo met with the central bank governor and heads of financial regulators.
“Increasing concentration in the semiconductor sector has become a factor raising financial market volatility, with the impact of fluctuations in the chip sector on the whole stock market growing,” the ministry said in a statement.
Also read: Korea’s AI stock rout is becoming a lesson in leveraged excess
(With inputs from agencies)
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