Mars Finance News, July 26, according to the Wall Street Journal, SK Hynix’s ADRs listed in the US this month have continued to trade at a high premium versus its locally listed South Korean stocks. Each ADR corresponds to 0.1 shares of the Seoul-listed stock and can be relatively easily converted into Korean shares, but since the listing two weeks ago, its premium versus Korean shares has fluctuated between 16% and 51%, still reaching 29% on Friday. US investors are paying a higher premium to trade SK Hynix shares directly on the New York market, rather than searching for brokers that can trade Korean shares. This reflects that the US market is willing to pay higher prices not only for chip stocks across the board, but that demand for memory stocks is especially pronounced—another sign of the current AI trading boom. Usually, when dual-listed stocks show a significant price spread, arbitrageurs buy the lower-priced market’s shares and sell them in the higher-priced market after conversion. But while SK Hynix ADRs can be converted into Korean shares, due to regulatory constraints it is difficult for Korean shares to be converted back into ADRs, and they cannot be processed without the company’s permission. As a result, hedge funds cannot perform risk-free arbitrage, and if the premium continues to widen, shorting ADRs could result in substantial losses. Some of the premium is reasonable, including South Korea’s stock transaction tax, lower trading and custody costs in the US, reduced currency management needs for US investors because the ADR is priced in dollars, and greater tax efficiency of ADRs within US ETFs. However, these factors typically only support a premium of a few percentage points. By comparison, TSMC ADR’s average premium from 2010 to 2020 was 3.2%, while since ChatGPT was launched in 2022, its average premium has risen to 15%. The high premium on SK Hynix ADR indicates that US market demand for trading AI chips and memory stocks is clearly higher than in South Korea. In the future, if investors shift to lower-priced South Korean stocks, the company issues additional ADRs, or market enthusiasm cools, the premium may narrow; if it narrows through a rise in the Korean shares, ADR investors’ impact may be limited, but if it disappears due to a decline in US ADRs or synchronized declines in chip stocks in both regions, holders could face losses.

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Analysis: SK hynix ADR was once priced at a premium of up to 51% over Korean stocks, reflecting overheating trading of AI chips

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