Last week, foreign investors were net buyers of the largest amount of Samsung Electronics preferred shares and net sellers of the largest amount of Samsung Electronics common shares on the Korea Exchange. Analysts said foreign funds flowed into preferred shares because their undervaluation stood out as their gains lagged common shares, and on top of that, expectations for year-end dividends grew.
According to the Korea Exchange (KRX) on the 23rd, foreigners were net buyers of 153.5 billion won of Samsung Electronics preferred shares on the Korea Exchange last week (the 15th to the 19th). In contrast, over the same period they were net sellers of 1.4571 trillion won of Samsung Electronics.
This move by foreign investors differs from the broader market trend. Last week, foreigners were net sellers of a total 3.3028 trillion won on the KOSPI alone, mounting a strong "sell" offensive. Institutions also had a selling advantage of 1.3486 trillion won, while only individual investors absorbed 4.4503 trillion won worth of shares on their own.
Foreign investors' "preference for preferred shares" is also evident in equity ratio trends. The foreign equity ratio in Samsung Electronics preferred shares, which was around 73% at the start of the year, surged to a record high of 77.44% on the 18th. This is the third-highest foreign equity ratio among all KOSPI-listed companies. By contrast, the foreign equity ratio in Samsung Electronics common shares stood at 51.98%.
The fact that Samsung Electronics preferred shares remain undervalued relative to common shares is cited as a reason for foreign buying. On the 22nd, Samsung Electronics common shares closed at 110,500 won, up 57,100 won (107%) from 53,400 won at the start of the year (Jan. 2). Over the same period, Samsung Electronics preferred shares rose from 44,700 won to 85,300 won, up 90.8%, a relatively smaller gain.
Jeong Da-un, senior researcher at LS Securities, said, "Typically, the price ratio of Samsung Electronics preferred shares to common shares moved around 80% to 85%, but as of Dec. 8 it fell to around 74%," adding, "Foreign inflows are gathering on expectations that preferred shares will be strong as they narrow the price gap with common shares."
Year-end dividend expectations are also a factor boosting the appeal of preferred shares. Because investors must hold shares through Dec. 31, the record date for dividends, to receive dividends, the interpretation is that foreigners moved in advance to buy preferred shares. Samsung Electronics paid a total of 490.11 billion won in dividends in the first half alone this year, the largest among domestic listed companies.
Preferred shares often trade at a discount to common shares because they lack voting rights. Instead, they receive the same per-share dividends as common shares, which means the dividend yield is relatively higher. However, the lack of voting rights can be a burden because it may limit upside potential during rebounds.
Brokerages also have a bright outlook for Samsung Electronics' results next year. Kim Dong-Won, head of research at KB Securities, said, "With DRAM supply shortages continuing, the price uptrend is expected to remain in the first quarter of next year," and noted, "From the first half of next year, an expansion in shipments of HBM4, which is expected to carry a 40% to 50% price premium, will further boost earnings momentum." He presented an annual operating profit forecast of 100 trillion won.