As the KOSPI and KOSDAQ indexes showed a mixed trend this week, repeatedly surging and plunging by more than 10% in a single day, foreign investors drew attention by heavily selling Samsung Electronics common shares while concentrating purchases in preferred shares.
As market volatility intensified, funds appear to have shifted to preferred shares that can target both capital gains from a semiconductor upturn and stable dividends at the same time. In addition, foreigners continued net buying of high-dividend defensive stocks and bio stocks with growth potential.
According to the Korea Exchange (KRX) on the 7th, foreign investors recorded the largest net purchases in Samsung Electronics preferred shares at 271.5 billion won from the 3rd to the 6th. During the same period, Samsung Electronics common shares ranked No. 1 in net sales (5.4108 trillion won), showing the exact opposite pattern.
Given that foreigners offloaded more than 6 trillion won in the main securities market, buying Samsung Electronics preferred shares is unusual. The securities industry views this as a "safety valve" strategy in which foreigners reduced exposure to index volatility by selling common shares, while shifting funds to preferreds with higher dividend yields.
In fact, foreigners who had dumped both issues through January–February reversed course this month as the market whipsawed. They turned to preferred shares, which lack voting rights but are attractive for dividends.
In particular, the low volatility of Samsung Electronics preferred shares also played a role. Generally, preferreds have low trading volume and are vulnerable in a surge-and-plunge market, but Samsung Electronics preferreds have a market capitalization exceeding 100 trillion won and a foreign ownership ratio of 77%, which, unlike typical preferreds, supports high market credibility, according to analysts.
In other words, foreigners bought preferreds at a discount to common shares, reduced exposure to the KOSPI, and captured both expectations for a semiconductor supercycle and dividend yields.
During the same period, Celltrion (194.2 billion won), Samsung Life Insurance (120.3 billion won), and HD Hyundai Heavy Industries (116.8 billion won) also ranked high in foreign net buying. Although in different sectors, Samsung Electronics, Samsung Life Insurance, and HD Hyundai Heavy Industries also meet this year's government criteria for high-dividend corporations and could be subject to separate taxation on dividend income.
In the KOSDAQ market, foreigners posted net purchases totaling 2.23 trillion won, a stark contrast to the KOSPI. They appeared to pursue a strategy of selection and concentration by focusing on biotech and robotics sectors, which are expected to show strong growth even in a volatile market.
Over the same period, they bought Koh Young Technology the most at 87.5 billion won, followed by Alteogen (71.7 billion won), EcoPro BM (59.6 billion won), ABL Bio (47.9 billion won), and Aimed Bio (45.2 billion won).
As the government's drive to revitalize the stock market continues, the securities industry is rolling out related exchange-traded funds (ETFs), and some say this foreign investment pattern could continue for the time being.
Na Jeong-hwan, an analyst at NH Investment & Securities, said, "Active KOSDAQ ETFs from major asset managers are slated to list this month, which could reflect expectations for fund inflows," adding, "During the 2017 KOSDAQ revitalization policy, the foreign investor share expanded to as high as 14.5%."
Na said foreigners' KOSDAQ ownership share could increase further compared with the five-year average of 9.5% and the current level of 10.9%.