Samsung Electronics posted record results, but a securities industry analysis said foreigners are continuing to dump semiconductor stocks because earnings volatility is high and, even when share prices rise, volatility increases and the appeal fades. It also noted that Chinese companies are growing quickly in the DRAM and NAND markets.

KOSPI and KOSDAQ rise together on the afternoon of the 10th in Seoul's Jung-gu as optimism builds over face-to-face ceasefire talks between the United States and Iran, with closing prices including KOSPI shown on the electronic board at the Hana Bank dealing room./Courtesy of News1

Earlier, Samsung Electronics announced preliminary first-quarter results of 133 trillion won in revenue and 57.2 trillion won in operating profit this year. However, since February, foreigners have been selling Korean stocks in large volumes, focusing on the domestic semiconductor sector.

According to Eugene Investment & Securities, foreigners sold more than 54 trillion won since the end of January, of which 49 trillion won were semiconductor names. That is an 86% share.

Heo Jae-hwan, a researcher at Eugene Investment & Securities, said, "The selling by foreign investors since late February appears to be due to the war," but added, "However, foreigners' equity share in the KOSPI market had been rising until just before the war."

He also analyzed that foreigners' equity share did not plunge after the war, but there appear to be three main reasons influencing foreigners' selling of semiconductor stocks nonetheless.

The three reasons were ▲ high earnings volatility ▲ volatility in share prices themselves ▲ the rapid growth of Chinese companies.

Heo said, "Comparing the revenue and operating profit of TSMC and Samsung Electronics, whose foreign equity shares exceed 70%, the volatility (standard deviation) of Samsung Electronics' operating profit growth rate is more than 10 times that of TSMC."

He also explained that, regarding share-price volatility, foreigners' equity share fell after the end of January, when the semiconductor share of market capitalization surpassed 40%.

Heo analyzed, "In short, as concentration in the semiconductor sector deepened, volatility risk increased," adding, "Even with rising share prices, volatility increased, making it less attractive on a risk-adjusted return basis."

Chinese companies are also growing rapidly in the DRAM and NAND markets. The expansion of Chinese companies' market share is due to growth in their domestic market supported by the government, and the share of Chinese companies, which had little presence before COVID-19, has risen to 8% to 10%.

However, the selling pressure from foreigners was expected not to continue.

Heo said, "Foreigners' equity share in the semiconductor sector is the lowest since COVID-19," adding, "Additional selling pressure is likely to subside."

In addition, domestic supply-demand support driven by domestic financial investment firms, namely exchange-traded fund (ETF) funds, has also improved.

Heo explained, "Even after the Iran war, foreigners increased their weighting in the following order: cosmetics, machinery, health care, consumer staples, KOSDAQ, and telecommunications," adding, "Foreigners are not selling due to concerns about the semiconductor cycle or domestic corporations."

He added, "Amid the confusing news related to the Iran war, interest remains in sectors where earnings are improving and foreign buying is intact."

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