SK Hynix ADR Poised for US Semiconductor ETFs With $1.5 Billion of Inflows

Fund inflows of $1.5 billion projected

ADR listing may command a premium

QQQ, SOXX and other indexes may add it in stages

If buying persists, expensive ADRs could lift Seoul shares

SK Hynix could attract $1.5 billion of inflows through US-listed exchange-traded funds after its American depositary receipt begins trading on Nasdaq, according to market estimates. Investors say the impact may extend beyond a short-term demand boost, as easier access for US buyers could trigger a valuation rerating and lift the company’s Seoul-listed shares as well.

Philadelphia Semiconductor Index Inclusion in Focus

A June 26 report from Mirae Asset Securities estimates new demand from US funds tied to the SK Hynix ADR listing at $1.5 billion. The brokerage projects about $340 million of buying from semiconductor-index ETFs including VanEck Semiconductor ETF (SMH) and iShares Semiconductor ETF (SOXX), and another $450 million from Nasdaq-tracking ETFs including Invesco QQQ Trust (QQQ). More than $700 million could also come from active ETFs and emerging-market funds.

The SK Hynix ADR is set to be added to Nasdaq indexes in July, shortly after the listing. It also stands a strong chance of joining the Nasdaq-100 by year-end. The ADR may then be added next year to the MVIS US Listed Semiconductor 25 Index, the ICE Semiconductor Index and the Philadelphia Semiconductor Index.

Listing an ADR creates additional demand from local ETFs and funds, Mirae Asset Securities analyst Yoon Jae-hong wrote. Some US ETFs already hold SK Hynix’s Korea-listed shares, but ETFs and indexes limited to US-listed stocks can only add the company once an ADR is available. One example is the MVIS US Listed Semiconductor 25 Index, the benchmark for SMH, the largest US-listed semiconductor ETF by assets.

TSMC’s ADR offers a precedent. Since listing in New York in 1997, it has been added to more than 400 US ETFs. Beyond semiconductor funds, the ADR has also been included in Nasdaq- and artificial-intelligence-themed ETFs, broadening the investor base.

ADR Premium May Also Lift Local Shares

Investors are also watching for an ADR premium. Steady buying through US ETFs could push the ADR to trade above the price of the underlying shares in Korea. Mirae Asset Securities said TSMC showed a similar pattern, with stronger inflows into US semiconductor ETFs tending to coincide with a wider premium on its ADR. From 2000 to 2023, TSMC’s ADR traded at an average premium of 1.8% to 3.3% over its local shares, and that premium has remained elevated recently.

A premium on the ADR could also spur arbitrage with the underlying shares. If investors sell the relatively expensive ADR and buy the local shares instead, buying in Seoul could increase and support the stock price.

Some investors also see the listing as a catalyst for a valuation rerating. According to Dow Jones Market Data, SK Hynix, the global leader in high-bandwidth memory market share, trades at 6.97 times 12-month forward earnings, below Micron Technology’s 9.46 times even though Micron ranks third in the HBM market. If US investors begin valuing SK Hynix on the same basis as Micron, that gap could narrow.

If SK Hynix becomes a direct comparison target with Micron, it would command a higher valuation, IBK Investment & Securities analyst Kim Woon-ho said. The Korea-listed shares could also be rerated toward the valuation of the Nasdaq-listed ADR, leaving further room for gains.

The SK Hynix ADR is scheduled to list on July 10. The company will issue 17.79 million shares in ADR form, equal to 2.5% of its existing shares outstanding, through a third-party allotment share sale. The issue price is 255,500 won per depositary receipt.

Yang Ji-yoon, Hankyung reporter yang@hankyung.com