SK Hynix Nasdaq Listing Fails to Lift KOSPI as Index Plunges

SK Hynix's successful Nasdaq listing on Friday, intended to boost investor sentiment in South Korea's semiconductor sector, did not prevent a sharp decline in the KOSPI index on Monday. The main index plunged nearly 9%, falling below the 7,000-point mark.

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TSMC's ADR is trading at a premium of about 15% compared to its underlying stock. The market recognized this as the expected level, leading to profit-taking.

SK Hynix shares dropped 15.37% to close at 1,845,000 won, breaking the 2 million won mark for the first time in over a month. Samsung Electronics, another semiconductor giant, also saw its stock fall 10.70% to 254,500 won.

Analysts attribute the market's downturn to several factors. The "supercycle" concerns in the semiconductor industry remain unresolved. Furthermore, the positive impact of SK Hynix's American Depositary Receipts (ADRs) on the domestic market has dissipated, leading to profit-taking by foreign investors. Foreigners sold a net 1.7 trillion won worth of SK Hynix shares on Monday, contributing to a broader sell-off.

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The premium on SK Hynix's ADRs did not prevent foreign investors from selling the underlying stock.

While SK Hynix's ADRs performed well on their debut, closing 12.8% above their offering price, this success did not translate into sustained optimism for the broader semiconductor industry. Some analysts noted that the premium on ADRs compared to the underlying stock, while expected, did not prevent foreign investors from selling their Korean shares. The market seems to have concluded that the ADR listing's positive influence has run its course.

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It is difficult to see the premium as a driver of the underlying stock's price increase.

Adding to the negative sentiment, a securities firm report suggested that SK Hynix's second-quarter earnings might fall short of consensus. This was attributed to a higher proportion of High Bandwidth Memory (HBM) in its sales mix, leading to a lower average selling price (ASP) increase compared to competitors. The future outlook hinges on the convertibility between the ADRs and the underlying stock, and potential inclusion of the ADRs in the Philadelphia Semiconductor Index (SOX). Investors are also awaiting capital expenditure plans from major US tech companies later this month.

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The success of SK Hynix's ADRs was insufficient to dispel doubts about the global semiconductor supercycle outlook.