WSJ calls SK Hynix ADR premium 'another sign of AI trading frenzy'

The Wall Street Journal called the steep premium at which SK Hynix's American depositary receipts are trading over the chipmaker's Seoul-listed shares "another sign of AI trading frenzy" on Sunday (local time).

James Mackintosh, the Journal's senior markets columnist, wrote in a column that day that the ADR's outsized premium over SK Hynix's Korean shares was "something that shouldn't happen in markets." According to the paper, the SK Hynix ADR has traded at a 16 to 51 percent premium to the Korean shares since it began trading on the New York Stock Exchange on July 10.

Mackintosh cited limited supply of the SK Hynix ADR relative to strong demand as one reason for the premium.

He noted that while US-listed ADRs can be converted into SK Hynix's Korean shares, regulatory constraints make the reverse conversion difficult, meaning "there is no safe arbitrage between the Korean and US shares." If investors could buy the cheaper Korean shares, convert them into ADRs and sell them at a higher price, the wide gap could not persist — but regulatory hurdles make that arbitrage effectively impossible.

Mackintosh acknowledged that trading costs, currency risk and tax differences could justify some premium on the SK Hynix ADR, but said the current premium far exceeds what those factors would warrant.

"This shows that demand for semiconductor shares in the US is out of control — even more so than in South Korea, the home of FOMO trading treated like a game," he said. AI-driven investment enthusiasm has pushed demand for semiconductor shares in the United States beyond any rational level, he argued.

Mackintosh said ADR buyers would be fine "if the premium shrinks as Korean shares catch up to the gap," but warned they "will be hurt if the company uses the US shares as a piggy bank, and hurt much more if semiconductor shares crash in both Korea and the US and the premium disappears."

SK Hynix is not alone — TSMC, the Taiwan-based chipmaker that also lists ADRs in New York, likewise trades at a substantial ADR premium.

According to the Wall Street Journal, TSMC's ADR premium held steady at around 3 percent between 2010 and 2020 but soared to an average of 15 percent after ChatGPT launched in 2022. Mackintosh said the TSMC ADR premium showed that "Americans have been willing to pay far more than Taiwanese investors."