SK Hynix’s American Depositary Receipts (ADRs) have been added to a major U.S. semiconductor exchanged traded fund (ETF), sparking interest in the widening price gap between SK Hynix’s domestic shares and its ADRs, which has reached a striking 40%.
Industry sources reported on Monday that the MVIS US Listed Semiconductor 25 Index, a benchmark for U.S. semiconductor stocks, recently included SK Hynix with a weighting of approximately 4.8% during its September rebalancing.
Consequently, the VanEck Semiconductor ETF (SMH), the largest semiconductor ETF in the U.S., will mirror this move by incorporating SK Hynix ADRs at a similar scale.
The SMH ETF, boasting net assets of around 97 trillion KRW (about 71.4 billion USD), currently stands as the most substantial semiconductor ETF listed in the U.S. This inclusion is projected to attract an influx of about 4.6 trillion KRW (about 3.39 billion USD) in new investments.
In South Korea, Samsung Asset Management’s KODEX U.S. Semiconductor ETF, which tracks the MVIS US Listed Semiconductor 25 Index, will also add SK Hynix ADRs to its portfolio. With net assets of 1.2 trillion KRW (about 883 million USD), this fund is expected to channel approximately 58 billion KRW (42.7 million USD) in passive investments towards SK Hynix.
As of the market close on the 18th, SK Hynix’s ADRs had a market capitalization of 46 trillion KRW (about 33.9 billion USD). This inclusion effectively means an inflow of funds equivalent to 10% of the company’s market value in one fell swoop.
Market watchers are keenly observing how this sudden influx of capital might impact both SK Hynix’s domestic shares and its ADRs. At the close of trading on September 18, the price disparity between the U.S. ADRs (187.50 USD) and the Korean-listed shares (1,857,000 KRW, about 1,367 USD) stood at a substantial 39.2%.
Financial analysts suggest that since expectations of inclusion in the SMH index may have already been priced in, SK Hynix ADRs could face short-term profit-taking pressure. This sentiment has been building since the ADR’s July debut, driven by anticipation of its inclusion in the index that closely tracks leading memory chip stocks.
In the wake of these developments, experts anticipate a potential inflow of global funds into SK Hynix’s domestic shares, which are trading at a roughly 40% discount to the ADRs. They predict that as the ADR price adjusts and demand for the domestic shares increases, the significant price gap between the two may begin to narrow.