[Edaily Reporter Kwon Oh Seok ] The price gap between the domestic shares and American Depositary Receipts (ADRs) of SK hynix(000660), a leading domestic semiconductor stock, shows no signs of narrowing. As investors, weary of the extreme volatility and supply-demand instability in the domestic stock market, turn to the relatively stable U.S. market, share prices are varying significantly depending on the listing market—even for the same company. Nevertheless, the securities industry is placing emphasis on the possibility of the spread narrowing in the future and advising investors to pay attention to the relative undervaluation of the domestic shares.
According to MP Doctor on the 24th, SK hynix’s stock price closed at 1,697,000 won on the 14th during regular trading on the Korea Exchange, down 6.35% (115,000 won) from the previous trading day. In contrast, SK hynix ADRs listed on the New York Stock Exchange on the 11th of the same month closed at $190.07, up 0.94% from the previous trading day. When converted to Korean won using the ADR-to-underlying stock exchange ratio (10:1) and the exchange rate, the ADR price amounts to approximately 2,558,200 won. This means the price discrepancy between the two markets has widened to as much as 50.7%.
SK hynix ADRs are currently trading at a premium of 30–40% on average relative to the underlying shares. However, this premium has been widening each month, rising from an average of 32.5% in July to 35.4% in August and 38.7% in September. As of the regular trading session on the 22nd on the Korea Exchange, the underlying stock closed at 1.84 million won, while the ADR closed at $188.86 (based on an exchange rate of 1,358.2 won) on the New York Stock Exchange that same day, resulting in a price discrepancy of approximately 39%.
Despite the potential for the converted price to decline due to the recent drop in the won-dollar exchange rate, the price discrepancy has not narrowed. This is because buying pressure has surged as investors seek the affordability of ADRs—which are priced at about one-tenth of domestic shares—and the stability of the U.S. market, even though ADRs carry a heavier tax burden than domestic stocks.
According to the Korea Securities Depository this month, domestic investors made net purchases of approximately $713.85 million (about 960 billion won) worth of SK hynix ADRs from the time of their listing through mid-month. In contrast, on the KOSPI market, retail investors sold a net 5.9675 trillion won, while foreign and institutional investors sold a net 8.6822 trillion won and 3.9690 trillion won, respectively, flooding the market with shares. This has even led to the emergence of dedicated blogs among investors that calculate the price discrepancy rate daily.
The market cites declining investor confidence in the Korean stock market and limitations in the supply-and-demand structure as the fundamental causes of this widening divergence. In fact, in the domestic market, every time stock prices rebound, a flood of profit-taking and stop-loss orders from investors caught at the peak hampers the recovery, whereas in the U.S. market, the trend is supported by global passive investment momentum.
Nevertheless, securities analysts note that SK hynix’s accessibility to global investors has expanded through its ADR listing, and as the mutual conversion between ADRs and underlying shares becomes smoother in the future, the valuation re-rating effect observed in ADRs is likely to spill over to the domestic underlying shares.
Park Yeon-ju, Head of the AI Research Center at MIRAE ASSET SECURITIES, predicted, “Currently, SK hynix’s price discrepancy is unusually high due to the overall risk premium on the KOSPI, so we believe there is some possibility it may narrow somewhat in the future. However, it is difficult to predict the timing and extent of this narrowing, and even if it does occur, the discrepancy is likely to narrow rather than disappear entirely.”
She added, “From an investor’s perspective, it is important to separate the assessment of the company’s fundamentals from the assessment of fluctuations in the premium itself, while also taking into account that domestic investors face no restrictions on accessing the domestic shares.” She emphasized, “Ultimately, both the domestic shares and ADRs follow the same earnings trend. Given the high likelihood that AI investment will continue and the strong valuation appeal relative to earnings, we view the outlook positively.”
Ryu Young-ho, an analyst at NH INVESTMENT & SECURITIES, also stated, “The premium is persisting because the supply of ADRs is limited to about 2.5% of the total issued shares, and there are restrictions on converting the underlying shares into ADRs. We expect that an expansion of ADR supply and strengthened shareholder returns will resolve the relative undervaluation of the underlying shares and drive a re-rating.”
He added, “The market will use the third-quarter earnings to assess additional shareholder return policies, earnings stability, and long-term supply agreements (LTAs),” noting, “We believe the current stock price remains undervalued relative to earnings. We maintain a positive outlook on memory companies.”