As global investors pour into South Korean equities, a significant wave of domestic retail traders is heading in the opposite direction, seeking refuge in US markets to sidestep the recent pullback at home. Exchange data reveals that despite the KOSPI benchmark entering a bull phase, Korean retail investors were net sellers of local stocks for most of last week, while foreign investors reversed course to become net buyers. Here’s a breakdown of the five key trading behaviors emerging from this trend.
Buying US-listed ADRs
According to the Korea Securities Depository, Korean investors net purchased $4.5 billion in US stocks during July, with roughly $840 million directed toward a single chipmaker’s American depositary receipts. SK Hynix’s ADRs ranked as the second-largest US security by net buying, even though investors could directly purchase the company’s shares on the local exchange. These ADRs trade at a premium to domestic listings, with Owen Lamont, senior vice president at Acadian Asset Management, noting a recent premium of around 10% alongside higher volatility. Referring to the trend of buying SK Hynix ADRs, Lamont remarked, “This is absolutely insane. There’s no reason for Korean investors to go to the US to buy depositary receipts of a Korean company.” He described the price dislocation as an anomaly and a warning sign of speculative excess. “This is a bubble indicator,” he added, drawing parallels to similar price disconnects seen in Taiwanese and Indian firms during the dot-com era.
Leveraged Bets
Among the top ten US stocks favored by Korean investors this month, a leveraged product—the ProShares Ultra QQQ ETF (QLD), which seeks twice the daily return of the Nasdaq 100—secured the seventh spot. Data from the Korea Securities Depository shows that four of the ten most net-bought US securities in July were leveraged ETFs. The most popular was the Direxion Daily Semiconductor Bull 3X Shares ETF (SOXL), designed to triple the daily performance of a semiconductor index. The ProShares UltraPro QQQ ETF (TQQQ) and ProShares Ultra QQQ ETF (QLD) ranked fourth and sixth, respectively.
Unchanged Investment Strategy
While investors have shifted trading venues, their underlying bet logic appears largely intact. “Ironically, when you dissect the data, they’re buying the same AI hardware plays that are correcting in the local market,” said Philip Wool, head of research at Rayliant Global Advisors. Jeong In-yun, founder of Fibonacci Asset Management, noted that some traders who suffered losses on domestic semiconductor stocks and local leveraged ETFs are pivoting to US AI stocks they perceive as higher quality and more liquid. “They haven’t reduced their exposure to the AI theme,” Jeong said. “They’ve just switched to a different regional vehicle to express the same view.”
July Fund Flow Reversal
Korea Securities Depository data indicates Korean retail investors net bought approximately $4.5 billion in US stocks last month, a substantial jump from June and approaching the $5 billion level seen in January. This coincided with a sharp sell-off in the domestic market, which had earlier attracted heavy retail participation in semiconductor stocks and leveraged products before a rebound this month. According to the Korea Financial Investment Association, margin balances on the local exchange stood at around 37 trillion won ($26 billion) at end-June but plunged to 27 trillion won by early July, hitting the year’s lowest level. Lamont noted that while July’s US buying was robust, it wasn’t unprecedented. “What’s interesting is that they stepped up US purchases exactly when the domestic market was tumbling,” he said.
Market Impact
Whether these Korean flows can significantly sway the massive US market is debatable. Wool believes the risk is minimal, as retail investors hold outsized influence in Korea, but US equities are dominated by institutional players, making even substantial Korean capital a small fraction of overall turnover. Lamont, however, argues that certain stocks and niche segments favored by retail traders are more prone to price distortions. He cited a late-2024 wave of Korean investors piling into US quantum computing stocks, and noted that the proliferation of leveraged ETFs across Korea, Hong Kong, and the US “could amplify price swings and heighten market volatility.”
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