Analysis: SK Hynix ADR premium over Korean shares reached up to 51%, reflecting overheating in AI chip trading

BlockBeats News, July 26 — According to The Wall Street Journal, SK Hynix’s ADRs listed in the United States this month have maintained a high premium compared to its locally listed shares in South Korea. Each ADR corresponds to 0.1 share of the Seoul-listed stock and can be relatively easily converted into Korean shares, but over the past two weeks since listing, the premium over Korean shares has fluctuated between 16% and 51%, still reaching 29% on Friday. U.S. investors are paying a higher premium to trade SK Hynix shares directly in New York, rather than seeking brokers who can access Korean stocks. This reflects not only a willingness in the U.S. market to pay higher prices for chip stocks overall, but also a particularly notable enthusiasm for memory stocks, further showcasing the current trading fever driven by AI.

Usually, when there is a significant price difference in dual-listed stocks, arbitrageurs will buy shares in the lower-priced market, convert them, and sell them in the higher-priced market. However, although SK Hynix ADRs can be converted into Korean shares, due to regulatory restrictions, Korean shares are difficult to convert back into ADRs, and it cannot be done without company approval. As a result, hedge funds cannot conduct risk-free arbitrage, and if the premium continues to widen, shorting ADRs could lead to considerable losses.

Part of the premium is reasonable, including Korean stock transaction tax, lower trading and custody costs in the U.S., lower currency management needs for American investors due to dollar-denomination, and greater tax efficiency of ADRs within U.S. ETFs. However, these factors typically only support a premium of a few percentage points. For comparison, TSMC’s ADRs had an average premium of 3.2% between 2010 and 2020, while since the launch of ChatGPT in 2022, the average premium has risen to 15%.