Korea ETF Sees Record Inflow Amid SK Hynix Proxy Demand

The iShares MSCI South Korea ETF (EWY), the largest US-listed exchange-traded fund focused on South Korea, experienced a record inflow of $740 million in the week ending May 10, 2024. This surge in investment is largely attributed to investors seeking exposure to SK Hynix Inc., a major South Korean semiconductor manufacturer.

Investors are utilizing EWY as a proxy to invest in SK Hynix due to the significant premium at which the chipmaker's new American Depositary Receipts (ADRs) are trading compared to its local shares on the Korea Exchange. As of May 10, 2024, SK Hynix ADRs were trading at approximately a 30% premium, making direct investment in the ADRs less attractive for some.

The substantial inflow into EWY highlights a strategic shift by some investors to gain indirect exposure to SK Hynix's growth prospects, particularly in the burgeoning artificial intelligence chip market. The ETF provides a diversified basket of South Korean equities, with SK Hynix being a significant holding, allowing investors to participate in the company's potential upside without the immediate cost disadvantage of the ADR premium.

This trend underscores the growing investor interest in semiconductor companies poised to benefit from AI advancements. SK Hynix, a key player in high-bandwidth memory (HBM) chips essential for AI servers, has seen its stock price and investor demand rise accordingly. The record ETF inflow suggests a broader market sentiment favoring companies at the forefront of AI hardware development.