Although Samsung Electronics posted record results, 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 wanes. It also noted that Chinese companies are growing rapidly in the DRAM and NAND markets.
Earlier, Samsung Electronics announced preliminary first-quarter results of 133 trillion won in revenue and 57.2 trillion won in operating profit this year. But since Feb., foreigners have been unloading Korean stocks on a large scale, centered on the domestic semiconductor sector.
According to Eugene Investment & Securities, foreigners sold more than 54 trillion won since the end of Jan., of which 49 trillion won were semiconductor names. That accounts for 86%.
Researcher Heo Jae-hwan at Eugene Investment & Securities said, "The selling by foreign investors since late Feb. appears to be due to the war," but added, "However, foreign equity in the KOSPI market had been rising right up until just before the war."
He also analyzed that even after the war, foreigners' equity share did not plunge, yet there appear to be three main reasons influencing foreigners' selling of semiconductor stocks.
The three reasons were listed as: ▲ high earnings volatility ▲ volatility in share prices themselves ▲ the rapid growth of Chinese companies.
Heo said, "Comparing sales and operating profit for TSMC and Samsung Electronics, where foreign equity exceeds 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 ratio fell after late Jan., when semiconductors' share of market capitalization exceeded 40%.
Heo analyzed, "In short, as concentration in the semiconductor sector deepened, volatility risk increased," adding, "Even with rising share prices, higher volatility likely reduced the appeal on a risk-adjusted return basis."
Chinese companies, too, are growing rapidly in the DRAM and NAND markets. The expansion of Chinese firms' market share stems from growth in their domestic market backed by government support, and their share—barely noticeable before COVID-19—has risen to 8%–10%.
However, the selling pressure from foreigners was not expected 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, the strength of domestic supply and demand driven by local financial investment firms, namely exchange-traded fund (ETF) flows, has improved.
Heo explained, "Even after the Iran war, foreigners increased their weights 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 appears to remain in sectors where earnings are improving and foreign buying remains intact."