Web3: South Korean Retail Investors Shift to US Stocks, Focusing on AI Semiconductor Targets

CoinWorld reports:

After significant fluctuations in the local stock market, retail funds in South Korea are accelerating their flow into the US market. According to data from the Korea Securities Depository, South Korean investors net purchased approximately $4.5 billion in US stocks in July, nearing this year's peak, with buying primarily concentrated on AI hardware themes.

July Fund Flow to the US Market

Data from the Korea Exchange shows that during most trading days last week, South Korean retail investors continued to net sell local stocks. Meanwhile, foreign investors turned to net buying of Korean stocks, creating a counterflow of funds.

Among the funds flowing into the US market, the most notable is the American Depositary Receipt (ADR) of SK Hynix. South Korean investors net purchased about $840 million of this ADR in July, making it the second-largest net purchased US security by South Korean investors for the month.

• Net purchase of US stocks in July: approximately $4.5 billion
• SK Hynix ADR attracted about $840 million
• Close to this year's high of about $5 billion in January

SK Hynix ADR Trading at a Premium

Analysts point out that this trading behavior is unusual. Since SK Hynix is already listed in South Korea, investors could have directly purchased the same company's stocks in the domestic market.

Owen Lamont, Senior Vice President at Acadian Asset Management, stated that the SK Hynix ADR has recently traded at a premium of about 10% compared to its local stock, with higher volatility. In his view, such price divergence typically occurs during periods of heightened speculative sentiment and could signal a localized bubble.

Active Buying of Leveraged ETFs

In addition to ADRs, South Korean retail investors' preference for high-risk leveraged products is also on the rise. The three-times leveraged semiconductor ETF SOXL topped the list of most sought-after US stock products by South Korean investors in July, with leveraged products occupying four of the top ten net purchased targets for the month.

Phillip Wool, Head of Research at Rayliant Global Advisors, believes that if we break down the buying structure of South Korean investors, we will find that most funds are still centered around AI hardware. This indicates that while funds are shifting from Seoul to Wall Street, the trading theme has not changed.

Jung In Yun, founder of Fibonacci Asset Management, also noted that some investors who previously faced pullbacks in South Korean semiconductor stocks or leveraged ETFs are now turning to higher-quality US AI stocks with better liquidity, but this does not mean they are reducing their exposure to the AI sector.

Increased Attention to Localized Volatility Risks

Regarding whether this influx of South Korean funds will impact the US market, analysts generally believe the systemic impact is limited. The reason is that the overall size of the US market is larger, dominated by institutional investors; even with a noticeable increase in South Korean retail funds, their impact on overall market transactions remains relatively limited.

However, localized distortion risks are still frequently mentioned. Lamont warns that South Korean investors previously concentrated on US quantum concept stocks, and are now forming crowded trades in ADRs and leveraged ETFs; such fund behaviors could amplify the volatility of individual sectors and products.

The backdrop of the local South Korean market has also driven this outflow. Previously, semiconductor stocks and leveraged products attracted a large number of retail investors, followed by a rapid market correction. Data from the Korea Financial Investment Association shows that the financing balance in the South Korean stock market was about 37 trillion won at the end of June, dropping to about 27 trillion won earlier this month, marking a year-to-date low. Analysts believe that South Korean retail investors, under pressure in the local market, continue to increase their stakes in US stocks, indicating that their risk appetite has not significantly cooled off.

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