Foreign Investors’ Net Selling
After the ruling of the first trial on Samsung Electronics Vice Chairman Lee Jae-yong on August 25, Samsung Electronics has been receiving many inquiries from foreign investors. Not only U.S.-based funds, such as BlackRock and Citigroup, but also Dutch pension funds, which had been against the merger of Samsung C&T and Cheil Industries earlier, are keeping an eye on how the so-called “trial of the century” will affect Samsung Electronics business in the future.
After the court ruling in the first trial, the price of Samsung Electronics share showed a decline for three days in a row and once fell below 2.3 million won (US$2,042.63) on August 29. Foreign investors net sold 6.4 billion won (US$56.84 million) worth of Samsung Electronics shares on the same day, dragging down the stock price. Samsung Electronics’ shares closed at 2,304,000 won (US$2,046.18) on the same day, down 0.04 percent from the previous day. The company is repurchasing 12,000 treasury stocks a day on average. However, it is not enough to prevent the fall in share prices, let alone boosting the price, with foreign investors’ selling climax.
Some express concerns that foreign investors can sell more stocks when their trust in Samsung Electronics’ management are shaken according to Lee’s trial results. They concerned that Lee’s enforced absence will create a long-term leadership vacuum at Samsung and harm its ability to make key strategic decisions for investment in new businesses, including biotechnology and automotive electronics, and merger and acquisition (M&A).
Hong Kong's stock market, which is sensitive to the South Korean market, is paying more attention to Lee’s trials than North Korea’s threats and missiles tests. A European fund manager said, “North Korea’s threats are so frequent that it is difficult to consider them variables. However, we are eyeing on Lee’s trials from the perspective of both negative factors and positive factors.”
Market experts say foreign investors recently sold their Samsung Electronics’ stocks earlier than planned due to profit taking rather than the company’s owner risks or North Korea risks.
Kim Hyung-ryul, head of the macro team at Kyobo Securities, said, “The absence of leadership can have a direct and indirect effect on company's strategic decisions but not on business activities. That is sheer nonsense.” He also said foreign investors are selling their stocks to make profits. Lee Jong-woo, head researcher at IBK Investment & Securities, said, “Considering the fact that the price of Samsung Electronics’ shares were between 1.2 million to 1.3 million won (US$1,066 to 1,155) when foreigners bought the most, it is natural for them to sell their stocks as the selling price is twice the profit. They are selling the shares at some 2.3 million won (US$2,043) so they will re-enter the market when the price goes down to 2.2 million won (US$1,954).”
Foreign investment firms are also waiting for the right time to sell Samsung Electronics’ shares again. An official from a Hong Kong-based investment company said, “Samsung Electronics is a value stock that moves up and according to corporate fundamentals, not a growth stock whose prices go up with turning points. We are watching whether the company’s governance structure and transparency will strengthen and dividends will improve.”
He added, “For us as fund managers, there is no share that can replace with Samsung Electronics in the South Korean market.” Global large asset management companies make Asia, especially South Korea, account for 1 percent of the total portfolio and they can’t find any other shares than Samsung Electronics because they invest in leading stocks in terms of market capitalization. Kyobo Securities’ macro team head Kim said, “Samsung Electronics’ market capitalization accounted for more than 20 percent of the domestic stock market in the first half of this year alone. There is no stocks which rank second to fifth in terms of capitalization that can replace with Samsung Electronics.”