On Oct. 20, when the KOSPI index topped the 3,800 mark for the first time ever, Samsung Electronics preferred shares (Samsung Electronics preferred) ranked No. 1 among the stocks most bought by foreign investors in the domestic stock market.
Foreign investors recorded a net purchase of 7.387 billion won in Samsung Electronics preferred shares, while Samsung Electronics common shares showed a net sell of 96.322 billion won the same day. The market interprets this as foreign investors selectively buying preferred shares as the price gap between Samsung Electronics common and preferred shares widened.
Preferred shares have priority rights over common shares for dividends or distribution of residual assets. However, in most cases they do not have voting rights at the general shareholders meeting and therefore trade at lower prices than common shares.
The closing prices on the 20th for Samsung Electronics common and preferred shares were 98,100 won and 76,000 won, respectively. The disparity rate, meaning the gap between the two share prices, is 22.5%. Considering that the average disparity rate over the past year is 17.5%, it widened by 5 percentage points. Simply put, foreign investors moved in when Samsung Electronics preferred shares were cheaper than usual compared with common shares.
Hong Ra-hee, honorary director of Leeum Museum of Art, Lee Bu-jin, president of Hotel Shilla, and Lee Seo-hyun, president of Samsung C&T—three daughters of the Samsung family—deciding to sell Samsung Electronics common shares to pay inheritance taxes is also cited as a factor increasing investment in preferred shares.
On the 16th, they signed a trust agreement with Shinhan Bank to dispose of 17,716,000 shares of Samsung Electronics. The contract runs through Apr. 30, 2026.
The Samsung Electronics common shares to be disposed of by Hong and others amount to about 1.738 trillion won based on the closing price on the 20th, exceeding Samsung Electronics' average daily transaction value over the past year (1.22 trillion won). Because the sales will be split, the short-term impact on the share price is limited, but with Samsung Electronics' share buybacks completed, steady selling of common shares could emerge, making it a concern.
Foreign investors have steadily added preferred shares alongside common shares as the Korean stock market has rallied. Doosan preferred, Hyundai Motor preferred, and LG CHEM preferred are representative examples. This suggests that preferred shares with widened disparity rates can be targeted for investment.
Of course, one should keep in mind that preferred shares often have lower trading volumes than common shares, which can distort prices. In the case of Solus Advanced Materials 1 preferred, the disparity rate with the common share (Solus Advanced Materials) reaches 80%.
In particular, for small and mid-cap preferred shares, there are many cases where investors cannot sell even if they want to during sharp declines. If investing in individual preferred shares is difficult, using an exchange-traded fund (ETF) such as TIGER Preferred Shares is an option.