The intense turbulence in South Korea's domestic stock market is driving a wave of retail investors toward the U.S. market—yet their wagers remain firmly rooted in the very same AI theme that fueled the local selloff.
According to data from the Korea Securities Depository, Korean investors made net purchases of approximately $4.5 billion in U.S. stocks during July, a sharp increase from June and approaching January's peak of $5 billion. Meanwhile, Korea Exchange data shows that for most of last week, Korean retail investors consistently sold domestic stocks—even as the benchmark index entered a technical bull market—while foreign investors reversed course to become net buyers.
The most striking move in this capital exodus: Korean investors spent roughly $840 million on U.S.-listed depositary receipts (ADRs) of SK hynix, even though they could have bought the same company's shares directly on the domestic exchange. At the same time, the triple-leveraged semiconductor ETF SOXL topped the list of most-sought U.S. equity products among Korean investors in July, with leveraged products claiming four of the top ten net-purchase slots that month.
Analysts warn that this "switching venues without switching bets" strategy not only fails to effectively diversify risk but also signals speculative overheating through ADR premiums and a preference for leveraged products, which could amplify volatility in specific market segments.
ADRs at a 10% Premium Still in Frenzied Demand
Of the $4.5 billion in U.S. stocks that Korean investors net-bought in July, approximately $840 million flowed into SK hynix's American depositary receipts, making it the second-largest net-purchased U.S. security by Korean investors.
This behavior has left market observers baffled. Owen Lamont, senior vice president at Acadian Asset Management, pointed out that SK hynix's ADRs have recently traded at roughly a 10% premium to the domestic shares, with higher volatility as well. Lamont said: "This is absolutely crazy. Korean investors have no reason whatsoever to buy U.S. depositary receipts of a Korean stock."
Lamont noted that such price divergences are unusual and often a warning sign of speculative overheating. "This is a symptom of a bubble," he said, drawing parallels to similar dislocations in Indian company ADRs during the dot-com era.
Leveraged Bets: Triple ETFs Lead the Pack
Alongside the rush into U.S. stocks, Korean investors' appetite for high-leverage products is equally striking. According to Korea Securities Depository data, four of the top ten net-purchased U.S. securities in July were leveraged products. Leading the list was the Direxion Daily Semiconductor Bull 3X Shares ETF—designed to deliver three times the daily return of a semiconductor index. The ProShares UltraPro QQQ and ProShares Ultra QQQ ranked fourth and sixth, respectively. So far this month, the ProShares Ultra QQQ ETF has also entered the top ten U.S. stocks among Korean investors, ranking seventh.
Despite the capital shift from Seoul to Wall Street, multiple analysts argue that the core logic of Korean retail investors has not changed. Phillip Wool, head of research at Rayliant Global Advisors, said: "Ironically, if you carefully dissect the data and look at what they're buying, most of it remains tied to the AI hardware theme—which is precisely the sector that suffered the sharpest declines in the domestic market."
Jung In Yun, founder of Fibonacci Asset Management, believes some traders who suffered losses in Korean semiconductor stocks or leveraged ETFs are now pivoting to U.S. AI stocks they perceive as higher quality and more liquid. "They aren't necessarily reducing their exposure to the AI theme; they may simply be switching to a different geographic vehicle to express the same view."
Local Distortion Risks Outweigh Systemic Impact
Could the influx of Korean capital materially impact U.S. markets? Analysts hold divergent views, but most agree that systemic risks remain limited. Wool sees little danger, noting that retail investors can exert disproportionate influence in the Korean market, but the U.S. market is dominated by professional institutions, making even sizable Korean inflows negligible relative to overall trading volumes.
Lamont, however, focuses more on the risk of localized distortions. He pointed out that Korean investors heavily piled into U.S. "quantum concept stocks" in late 2024, and warned that the widespread proliferation of leveraged ETFs in Korea, Hong Kong, and the U.S. "could be intensifying volatility and magnifying market swings."
The Korean retail exodus has deep roots in the domestic market's recent history. A strong rally initially drew retail investors heavily into semiconductor stocks and leveraged products, only for the market to sharply correct afterward. According to the Korea Financial Investment Association, margin balances on the Korean stock market stood at roughly 37 trillion won (about $26 billion) at the end of June, before plummeting to 27 trillion won earlier this month—the lowest level of the year.
Lamont said July's U.S. stock purchases were "strong" but not unprecedented, "but what's interesting is that they increased their buying of U.S. stocks precisely during the domestic market's sharp downturn."
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