Investors are flooding into the largest US-listed South Korea exchange-traded fund at a record pace, seeking an alternative route to invest in SK hynix as its American Depositary Receipts trade at a significant premium to its Korean shares.

Data shows that the $23 billion iShares MSCI South Korea ETF, ticker EWY, attracted over $1.1 billion on Wednesday, following a record single-day inflow of $814 million the previous day. The fund holds a roughly 25% allocation to SK hynix Korean shares, making it one of the most accessible ways for investors to gain exposure to the stock trading in Seoul.

Understanding the ETF's Role

In essence, ETFs serve as alternative investment vehicles, offering a highly efficient method for investors to gain exposure to various market themes, whether in emerging or developed markets, according to a chief ETF strategist.

Driving Forces Behind the Surge

This massive inflow into the ETF coincides with the recent US listing of SK hynix ADRs, which saw active trading on their debut and quickly commanded a substantial premium over the underlying Korean stock. As of Thursday afternoon in New York, the ADRs were trading at a premium of approximately 27%, having reached a peak of 51% in the previous session.

The Investor Strategy at Play

Rather than purchasing the premium-priced ADRs directly, a number of investors appear to be using the EWY ETF as a conduit to gain exposure to the Korean shares of SK hynix. This approach offers advantages over direct ownership of Korean stocks, sidestepping complexities related to after-hours trading and currency conversion.

A market strategist noted that investors are utilizing the EWY fund specifically as a pathway to access the Korean-listed shares of the company.