Record Inflows Into EWY as Investors Use ETF as Proxy to Gain Exposure to SK Hynix
Claire Weston
BlackRock's Korea ETF EWY drew nearly $2 billion in two days — a record — as SK Hynix's ADR trades at a 51% premium to its Seoul-listed shares, pushing investors into the fund as a cheaper proxy.
Why is money suddenly flooding a Korea ETF?
SK Hynix's US-listed ADR — a depositary receipt letting Americans trade a foreign stock — carries a 51% premium over its Korean-listed shares. Buying the ADR means paying roughly half again the local price.
This means → investors who want SK Hynix exposure but balk at the ADR markup found a back door: EWY allocates roughly one quarter of its assets to SK Hynix's Seoul-listed stock.
The result: $814 million on Tuesday, over $1.1 billion on Wednesday — back-to-back records for the fund.
Why is the premium so wide — and why won't it close?
Normally, arbitrage — selling the expensive instrument, buying the cheap one — would flatten the gap. But the ADR issuance and cancellation books are closed; investors cannot freely convert between the two.
In plain terms = the arbitrage door is locked, so the price gap just hangs there with no one able to close it.
Even after the books reopen later this month, conversion quotas and possible regulatory approvals remain uncertain. A similar dynamic has kept TSMC's ADR at an average ~20% premium over the past year.
What do market participants make of these flows?
Dave Lutz, equity sales trader at Jonestrading: "Investors are using EWY as a way to get exposure to Korea-listed equities."
This reflects a broader pattern — ETFs functioning as proxy tools, letting US investors skip a Korean brokerage account, currency conversion, and out-of-hours complexity.
Tom Graff, CIO at Facet, cautions: some inflows may stem from short covering (forced buying by bearish traders), adding "demand is extremely strong, but whether it persists is an open question."
Can this momentum last?
Year-to-date, EWY has absorbed over $6.3 billion; fund assets have swelled more than 180% from the start of the year to $23 billion.
Risk signal: Korean regulators have halted new single-stock ETF listings tied to SK Hynix and Samsung Electronics — a sign the authorities are wary of volatility.
This means → sustainability hinges on two things: how fast the ADR premium narrows, and when (and at what quota) the arbitrage channel reopens. Either development could rapidly undercut the logic driving these inflows.
Content is for reference only, not financial advice.