As concerns grow that foreign investors will buy American depositary receipts (ADRs) and sell the domestic common shares after the listing of SK hynix(000660)'s ADRs, Hyundai Motor Securities said on the 15th that if an ADR premium forms, it could instead increase foreigners' incentive to buy the common shares.
Kim Jae-seung, an analyst at Hyundai Motor Securities, said, "There are concerns that as investment accessibility in the U.S. market increases after the ADR listing, foreigners will sell the common shares to avoid volatility in the domestic stock market and the won-dollar exchange rate and move into ADRs," adding, "However, a wider ADR premium can instead be a factor that raises the attractiveness of common-share investment for foreigners."
Hyundai Motor Securities cited TSMC as a representative case. As investor sentiment toward tech stocks improved around the United States and the prices of the common shares and ADRs rose together, TSMC showed a pattern of an expanding ADR premium on the back of the U.S. market's high liquidity and investment accessibility.
In particular, it analyzed that moves to buy the common shares emerged when the ADR premium was 25% or higher. Kim said, "Looking at TSMC, when the ADR premium widened to 25% or more, global investors tended to buy the relatively cheaper Taiwan common shares."
Before 2022, TSMC's ADR premium was in the 0–20% range, but after the generative artificial intelligence (AI) boom took off, it rose to the 10–30% range. Hyundai Motor Securities projected that even if SK hynix's ADR premium is not identical to TSMC's, it could form in a similar range.
In fact, SK hynix's ADR closed at $193.92 on the 14th (local time). Converted into the won-denominated price per common share, that is about 2.88 million won, roughly 51% higher than the same day's SK hynix common-share closing price (1.91 million won).
Kim said, "Rather than viewing the SK hynix ADR listing as a factor for foreigners to exit domestic common shares, it is reasonable to see it as an opportunity for a new price discovery mechanism to form between the U.S. and Korean markets," adding, "In the early stage of the listing, short-term supply-demand volatility may appear as the market searches for an appropriate ADR premium, but in the mid to long term, TSMC's case should be referenced."