South Korean Investors Increase U.S. Market Exposure, Including Leveraged Products

Shift to U.S. Markets

South Korean retail investors have increased their net purchases in U.S. markets, while simultaneously net selling domestic stocks for most of the past week. This occurs even as the Korean benchmark index entered bull market territory and overseas investors became net buyers in the domestic market.

Investment in Korean ADRs

In July, approximately $840 million of the $4.5 billion in U.S. stocks net bought by Korean investors went into SK Hynix's U.S.-listed depositary receipts (ADRs). These ADRs were the second most net-purchased U.S. securities, despite investors being able to buy the same company's shares directly in Korea. Owen Lamont of Acadian Asset Management noted that these U.S. receipts have traded at a premium of about 10% to the Korean shares and exhibit greater volatility, calling this buying behavior "absolutely crazy."

Leveraged Product Popularity

Leveraged products are also popular among these investors. In July, four of the 10 most net-purchased U.S. stocks were leveraged products. The Direxion Daily Semiconductor Bull 3X Shares ETF (SOXL), which aims for three times the daily performance of a semiconductor index, was the most popular. Other leveraged products like ProShares UltraPro QQQ and ProShares Ultra QQQ also ranked highly.

Underlying Investment Themes

Analysts suggest that investors are not necessarily changing their investment themes. Phillip Wool of Rayliant Global Advisors stated that the purchases are largely tied to the same AI hardware theme that has been selling off in the local Korean market. Jung In Yun of Fibonacci Asset Management added that some traders, having experienced losses in Korean semiconductor shares or leveraged ETFs, may be shifting to U.S. AI stocks perceived as higher-quality or more liquid, thus maintaining their exposure to the AI theme.