Samsung Electronics’ shares fell more than 3 percent due to foreign investors’ selling spree on January 9 when the company said it posted an operating profit of 50 trillion won (US$46.73 billion) a year. This is the second highest fall after 3.42 percent in just one day when Morgan Stanley expressed concerns that a boom in memory chips is likely to peak soon last month.
Samsung shares plunged as its fourth-quarter operating profit fell short of the forecast and Morgan Stanley, which stirred up a controversy over the boom in memory chips, announced that it could lower its outlooks on the company’s performance this year. In addition, the strong Korean won was forest to adversely affect Samsung Electronics’ performance and the company has been excluded from a social responsible investment (SRI) index abroad, undermining foreign investor sentiment.
Samsung Electronics’ shares closed at 2.52 million won (US$2,355) on the 9th, down 3.11 percent from the previous day. Its price once nosedived 3.92 percent to 2,499,000 won (US$2,335) in intraday trading, falling below the 2.5 million won (US$2,356) level. Individual and institutional investors bought 151.6 billion won (US$141.68 million) and 19.1 billion won (US$17.85 million) worth of Samsung shares respectively. However, foreign investors sold 217.6 billion won (US$203.36 million) worth of them, boosting the downturn.
The drop in Samsung Electronics’ share prices was largely due to its lower revenue in the fourth quarter than expected. According to financial information provider FnGuide, securities firms’ average forecast of Samsung Electronics sales and operating profit in the fourth quarter were 66.73 trillion won (US$62.36 billion) and 15.87 trillion won (US$14.83 billion) respectively. The figures were scaled back from 67.04 trillion won (US$62.66 billion) and 15.95 trillion won (US$14.91 billion) at the end of last year. Securities companies have continued to lower their earnings outlook on Samsung Electronics on the grounds of a slowdown in the semiconductor industry and the foreign exchange rates from October and November last year. Nevertheless, the forecast has been even lowered.
Hwang Min-sung, an analyst at Samsung Securities, said, “In particular, the forecasts of sectors other than memory chips were disappointing. Samsung Electronics’ share prices fell further as there were growing concerns that the company could be heavily dependent on a “single engine” of semiconductor.” It means that the company’s business structure that memory chips, home appliances and smartphones prop up one another doesn’t work properly at the moment.
However, Samsung Electronics’ earnings have increased. They just fell short of the forecast. The company’s sales and operating profit in the fourth quarter grew 23.76 percent and 63.77 percent, respectively, from a year ago. Some point out that there is no problem with fundamentals as the main reasons of tentative performance falling short of the expectations are foreign exchange rates and performance-based bonus. Kim Kyung-min, an analyst for Daishin Securities, said, “The increase in performance-based bonus is the circumstantial evidence for the boom but Samsung Electronics’ share prices are highly likely to go up when the won gets weaker.”
However, Morgan Stanley’s curse dragged Samsung Electronics’ share prices down. In regard to the company’s fourth-quarter revenue, Morgan Stanley said, “As the number fell short of a Bloomberg forecast, the company's overall business outlook in 2018 will be more likely to be downgraded.” The fact that Samsung Electronics was excluded from the MSCI KOREA ESG Leaders Index of Morgan Stanley Capital International (MSCI) also had negative effects on some foreign investors. The ESG Leaders Index includes companies based on its ability of sustainable management. Samsung Electronics met a minimum rating in terms of environmental, social and governance (ESG) but failed to meet the minimum social controversies score. The SRI funds overseas are still small in size but they can help foreigners withdraw capital from the domestic market by stimulating investor sentiment.