SK Group Chairman Chey Tae-won, SK Hynix CEO Kwak Noh-jung, and other key executives pose for a commemorative photo in front of the Nasdaq Tower in Times Square, New York, on the 10th (local time), the day SK Hynix began trading its ADRs on the Nasdaq. [Photo=Nasdaq/Yonhap News]

The theme of capital rotation this week is ‘Same Company, Two Prices.’

SK Hynix’s Nasdaq listing has broadened the capital-raising channels for Korean companies. At the same time, it has simultaneously exposed the disparities in investor composition, liquidity, leverage, and pricing structures between the Korean and U.S. markets.

SK Hynix listed 177.9 million American Depositary Shares (ADS) on the Nasdaq, based on 17.79 million underlying common shares. One common share corresponds to 10 ADSs traded in the U.S. The offering price was $149 per share, with the total capital raised amounting to approximately $26.5 billion, or about 40 trillion KRW at the time's exchange rate.

According to Korea Exchange disclosures, the Nasdaq listing date was the 10th, the payment date was the 14th, and the ADS issuance date was the 15th. The underlying common shares are scheduled to be additionally listed on the Korea Exchange's KOSPI market on the 29th.

On its first day of trading (the 10th), SK Hynix ADS opened at $170 and closed at $168.49—a 13.08% premium over the offering price. New demand from U.S. investors drove this premium above the public offering price.

However, the domestic common shares moved in the opposite direction after the first day of trading.

On the 13th, SK Hynix plunged by 15% and Samsung Electronics by 10%. The KOSPI closed down 8.95% at 6,806.93, with both sidecar trading halts and circuit breakers triggered. Rather than the U.S. listing expectations leading to further gains in domestic stocks, it stimulated profit-taking and the liquidation of leverage due to the dissipation of those expectations.

Foreign capital shifted its direction on a daily basis.

On the 15th, foreigners net-bought approximately 2.3 trillion KRW in the KOSPI, and the index closed up 6.24% at 7,284.41. As SK Hynix ADS and U.S. semiconductor stocks rebounded, bargain hunting centered on Samsung Electronics and SK Hynix poured in.

However, on the 16th, foreigners net-sold approximately 1.4 trillion KRW, and institutions net-sold approximately 2.4 trillion KRW. The KOSPI gave back most of the previous day's gains, sliding 6.37% to 6,820.60. Samsung Electronics fell 8.77%, and SK Hynix plummeted 11.53%.

The KOSPI fell from 7,475.94 on the 10th (the last trading day of the previous week) to 6,820.60 on the 16th (the last trading day of this week), marking an 8.77% decline over the week. It plummeted 8.95% on the 13th, surged 6.24% on the 15th, and dropped again by 6.37% on the 16th. It was a week where daily volatility became more significant than the overall market trend.

This trend shows why it is difficult to view foreign capital as having structurally returned to the Korean market. Foreigners bought large amounts of semiconductor blue-chip stocks when prices plunged, but turned to selling immediately when U.S. semiconductor stocks and SK Hynix ADS fell again.

Price discrepancies remain between the ADS and domestic common shares, and there are limitations to the arbitrage trading connecting the two markets until the additional listing of the underlying shares. Furthermore, the combination of futures, program trading, and single-stock leverage products amplified the volatility of the domestic spot market based on prices formed overseas.

The answer to last week’s question, “Did the strength of Korean ETFs lead to supply and demand in the domestic spot market?” is 'partially, but it was not sustainable.' Foreign buying came in but turned back to selling after only one day. It was a market where ADS and domestic shares, as well as spot and derivatives, exacerbated each other's fluctuations.

The conclusion of this week's Capital Rotation Radar is as follows:

SK Hynix ADS succeeded in attracting U.S. capital, but that capital did not lead to a revaluation of the entire Korean stock market. Instead, it exposed the price discrepancy between the two markets and the high leverage risks of the domestic market.

The key points to watch next week are three-fold.

First, it must be verified whether the price gap between SK Hynix ADS and domestic common shares narrows.

Second, we must observe whether foreign net buying ends up being merely one-day bargain hunting.

Third, it must be assessed whether retail bargain hunting or the liquidation of margin positions gains the upper hand at the KOSPI 6,800 level.