South Korean retail investors pour $4.5 billion into US stocks

South Korean retail investors are switching markets, not bets, as a bruising correction at home pushes them into U.S.-listed AI and leveraged products.

South Korean retail investors net bought $4.5 billion of U.S. stocks in July, fleeing a domestic correction while keeping AI and leveraged bets intact through U.S.-listed securities.

"That's absolutely crazy," Owen Lamont, senior vice president at Acadian Asset Management, said of Korean investors buying SK Hynix's U.S.-listed shares. "There's no reason for a Korean investor to buy ADRs of Korean stocks in the U.S."

Of the $4.5 billion, around $840 million went into SK Hynix's U.S.-listed depositary receipts, the second most net-purchased U.S. security, even though Korean investors can buy the same company directly at home. The receipts have traded at a premium of about 10 percent to the Korean shares and show greater volatility.

The flows are unlikely to sway the far larger U.S. market, but they could increase volatility in individual names and leveraged products favored by retail traders, Lamont said, pointing to a rush into U.S. "quantum" stocks in late 2024.

Same AI Bet, Different Market

Investors may be changing markets without necessarily changing the bet. "The irony is that if you parse the data and look at what they're buying, it's largely shares tied up in the same AI hardware theme that's been selling off in the local market," Phillip Wool, head of research at Rayliant Global Advisors, said.

Jung In Yun, founder of Fibonacci Asset Management, said some traders hurt by losses in Korean semiconductor shares or leveraged ETFs may be shifting to U.S. AI stocks they perceive as higher-quality or more liquid. "They are not necessarily reducing their exposure to the AI theme," Yun said. "They may simply be changing the geographical vehicle through which they express the same view."

Leveraged Products Dominate the List

One of the 10 most popular U.S. stocks among Korean investors this month was a leveraged product — ProShares Ultra QQQ ETF, which ranked No. 7. In July, four of the 10 most net-purchased U.S. stocks were leveraged products, according to Korea Securities Depository data. The most popular was the Direxion Daily Semiconductor Bull 3X Shares ETF, or SOXL, which aims to deliver three times the daily performance of a semiconductor index. The leveraged ProShares UltraPro QQQ and ProShares Ultra QQQ ranked fourth and sixth.

Reversal From July

Korean retail investors net bought around $4.5 billion in U.S. stocks last month, a sharp pickup from June and near the net purchases of $5 billion in January. At the same time, the country's shares saw a massive selloff, following a spectacular rally that drew retail investors into semiconductor stocks and leveraged products, before staging a rebound this month.

Margin loan balances in the Korean stock market stood at about 37 trillion won ($26 billion) at the end of June, before tumbling to 27 trillion won earlier this month, the lowest level this year, according to the Korea Financial Investment Association.

While July's purchases were "strong" but not unprecedented, Lamont said, "it is still pretty interesting that they increased their U.S. buying even as the Korean market was plunging."

Limited Impact on U.S. Markets

Whether the influx of Korean money can meaningfully increase volatility across the much larger U.S. market is another question. Wool sees little risk of that. While retail investors can have an outsized influence in Korea, U.S. markets are dominated by professional and institutional investors, making even large Korean flows small relative to overall turnover.

Lamont sees greater potential for distortions in individual names and corners of the market favored by retail traders. He pointed to Korean investors' rush into U.S. "quantum" stocks in late 2024, and said the proliferation of leveraged ETFs across Korea, Hong Kong and the U.S. is "possibly adding volatility and magnifying market fluctuations."

This article is for informational purposes only and does not constitute investment advice.