Korean Stocks Trump ADRs: Analyst Explains Premium and Currency Risks
SingTao · 1 SOURCESabout 2 hours ago2 MIN
Summary
Financial analyst Lee Sheng-yang has revealed his strategy for investing in Korean equities, explaining why he chose to purchase SK Hynix (ticker: 000660) and KB Financials (ticker: 105560) directly on the Korean Exchange rather than their US-listed ADRs . The author, who first entered the Korean market in April through the US-listed EWY ETF, argues that direct Korean stock purchases offer better value due to substantial premiums on ADRs and liquidity concerns . While acknowledging that SK Hynix has experienced a 50% pullback from its highs, Lee emphasizes that the stock remains up over 160% year-to-date, and the broader Korean market has surged 60%, despite multiple circuit breaker incidents .
Key Points
- Lee Sheng-yang purchased SK Hynix (000660) and KB Financials (105560) directly on the Korean Exchange after a broker enabled Korean stock trading functionality
- SK Hynix ADR trades at a significant premium to the Korean underlying stock, prompting Lee to avoid the ADR and purchase the local share instead
- KB Financials ADR exhibits very low trading volume, making direct Korean Exchange purchase the preferable option
- ADRs quote prices in USD but still carry Korean won currency risk, as exchange rate fluctuations are embedded in the quoted price
- Korean market volatility index VKOSPI operates differently from the US VIX, requiring investors to understand local market mechanics before applying US-style strategies
- KB Financials represents a diversified financial institution covering both banking and securities operations, benefiting from rising global bond yields and widening net interest margins
Why It Matters
For Hong Kong investors seeking international diversification, Lee's analysis highlights practical considerations when accessing Korean equities, including the importance of evaluating ADR premiums and understanding that currency risk persists even with dollar-denominated instruments .
For Hong Kong investors seeking international diversification, Lee's analysis highlights practical considerations when accessing Korean equities, including the importance of evaluating ADR premiums and understanding that currency risk persists even with dollar-denominated instruments .