Concerns over Volatility Mounting
The ratio of Samsung Electronics’ market cap to the KOSPI 200 market cap jumped to 34.85 percent on March 20 with the spread of COVID-19 seriously affecting the stock price index. Under the circumstances, concerns over volatility are mounting with a market cap ceiling scheduled to be applied in June. The ratio, which stood at 27.77 percent in September last year, soared to 35.35 percent on March 19.
The increase in ratio is because the stock price of Samsung Electronics fell less than the overall stock price index. This month, the latter dropped 20.28 percent whereas the former fell 16.2 percent. This has to do with expectations that the global memory chip demand will be raised by data centers in North America and China.
In addition, individual investors bought a large number of Samsung Electronics shares while foreign investors dumped them. According to market research firm FnGuide, the company’s operating profit for this year is estimated at 39,124 billion won, up 40.89 percent from a year ago, although the market consensus is falling in the wake of the spread of the coronavirus.
The market cap ceiling, in the meantime, was introduced in June last year so that company-specific lopsidedness can be prevented. When the ratio of a company’s market cap to the KOSPI 200 market cap exceeds 30 percent in March to May or September to November, the ratio must be lowered to 30 percent on the trading day that follows the double witching day of June or December. If the ratio of Samsung Electronics is maintained at the current level, the company will be subject to the ceiling in June this year.
It has been point out that the implementation of the ceiling will lead to a rapid decline in investment in Samsung Electronics and a much higher level of stock market volatility. Korea Exchange is currently working on measures to minimize the potential impact. “In principle, the portion exceeding the ceiling must be disposed of in one day,” Korea Exchange explained, adding, “However, we are examining various measures in that the disposal will lead to a significant impact.”