As the South Korean stock market faced corrections in July, individual investors from Korea concentrated their investments in U.S. stocks related to artificial intelligence (AI), semiconductors, and leveraged products, raising concerns about potential risks in the U.S. market.
On August 18, U.S. economic broadcaster CNBC reported, citing data from the Korea Securities Depository, that Korean investors net purchased approximately $4.5 billion (about 6.3 trillion won) in U.S. stocks in July, a significant increase from June.
Notably, about $840 million of the total net purchases was directed towards American Depositary Receipts (ADRs) of SK Hynix. While investors in Korea could buy shares of the same company domestically, they opted for the U.S.-listed ADRs, which have recently traded at prices about 10% higher than their domestic counterparts.
Owen Lamont, senior vice president at Acadian Asset Management, told CNBC that there is no reason for Korean investors to buy U.S. ADRs of Korean companies, calling it "completely crazy." He warned that such price discrepancies could signal speculative overheating.
There was also a strong preference for leveraged products. According to reports, four of the top ten net purchases of U.S. stocks by Korean investors in July were leveraged products.
The most purchased product was Direxion's Daily Semiconductor Bull 3X Shares ETF (SOXL), which tracks three times the daily returns of the semiconductor index. The ProShares UltraPro QQQ and ProShares Ultra QQQ, which leverage the Nasdaq 100 index, ranked fourth and sixth, respectively.
CNBC analyzed that while Korean investors are shifting their investment focus from Korea to the U.S., they have not significantly changed their investment strategies. Philip Wu, head of research at Religare Global Advisors, noted that Korean investors are still heavily buying AI hardware-related assets in the U.S., similar to their domestic market behavior.
In contrast, leveraged investing appears to be declining in the domestic market. The balance of margin loans in the domestic stock market dropped sharply from about 37 trillion won at the end of June to 27 trillion won earlier this month, marking the lowest level of the year. Meanwhile, net purchases of U.S. stocks by domestic investors have surged during the same period.
However, analysts suggest that the influence of institutional investors in the U.S. market means that the buying activity of Korean individual investors is not large enough to significantly impact the overall U.S. stock market.
Lamont pointed out that while the overall market may not be affected, there could be price distortions in specific stocks that Korean investors are heavily buying. He cautioned that the increase in leveraged ETF investments in Korea, Hong Kong, and the U.S. could heighten volatility and amplify market movements.
* This article has been translated by AI.
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