Samsung Electronics Announces KRW 90-110 Trillion Shareholder Return… Market Reaction Is 'Skeptical'

The KOSPI currently appears to be facing the limits of a technical rebound around 2,700 points, approximately half of its previous decline. According to analysis using Fibonacci retracement indicators, unless there are significant changes in macro variables, 2,700 points may act as a technical resistance level, limiting further gains. This suggests that the rebound is merely a correction from an excessive market decline, and further upside may be limited without additional momentum.

In a high-interest rate environment where the US 10-year Treasury yield exceeds 4.7% and the 30-year yield exceeds 5%, corporate differentiation is expected to intensify. This is because there can be a significant difference in valuation between companies that have the capacity to enhance earnings per share (EPS) through share buybacks and cancellations, and those that do not. Ultimately, high interest rates will be a major factor determining investment attractiveness based on a company's ability to implement shareholder return policies. In this environment, financially stable companies can attract more investor attention by enhancing shareholder value.

The passage of the Clarity Bill, scheduled for September 15, is expected to be a major turning point for interest rates and markets in the second half of the year. This bill aims to promote the growth of the stablecoin market, which could lead to an increase in demand for short-term Treasury bills. An increase in demand for short-term Treasury bills, which are required as collateral for stablecoin issuance, could alleviate the US government's burden of issuing long-term Treasury bonds. Therefore, the passage of the bill will have a significant impact on the direction of interest rates and has the potential to change overall market trends. Market participants are closely monitoring the progress of this bill.

In the past, Korean companies were often criticized for not actively using their profits to enhance shareholder value, which was a major cause of the 'Korea Discount.' This practice accelerated the outflow of investor funds abroad. In contrast, global big tech companies have recently been strengthening shareholder-friendly policies through large-scale share buybacks and increased dividends, presenting a stark contrast to Korean companies. There is a growing call for Korean companies to urgently strive to restore investor trust and address undervaluation factors through shareholder return policies. Such changes could lead to an overall revaluation of the Korean stock market.

There is skepticism that the Korean economy's expansionary fiscal stance and aging population structure make it difficult to induce a strong Korean won. Furthermore, the accelerating trend of companies relocating their factories overseas could also negatively impact the won's strength. Given these circumstances, it has been suggested that when the KRW/USD exchange rate approaches 1,300 won, it would be a wise investment strategy to gradually buy dollars and increase their proportion. This can be seen as a defensive approach to changes in the domestic macro environment.

It has been argued that if stock prices rebound while interest rates are not falling, it could be a temporary market movement, necessitating a strategy to increase cash holdings. This is to create a 'cash buffer' in case of unexpected market shocks. There is a possibility that the US government may temporarily implement policies to defend the market ahead of elections, so preparation is needed for potential market volatility after these defenses are removed. Therefore, securing cash can be a cautious response to uncertain market conditions.

If the Clarity Bill successfully passes on September 15, the KOSPI could rise beyond the current estimate of 2,700 points to 2,750, driven by lower interest rates. This would represent a retracement of approximately 61.8% of the recent decline. Lower interest rates positively impact stock market valuations (multiples), providing an opportunity to re-evaluate corporate values. Therefore, the passage of the Clarity Bill is expected to be a crucial variable in determining the KOSPI's upside guideline.

There is an inverse relationship between US long-term interest rates and the price-to-earnings ratio (PER). When long-term interest rates rise, the market tends not to value companies' PERs highly. For example, companies that were given a PER of 20-30 times when interest rates were low often see their PER drop to around 10 times when interest rates surge. This is because the required rate of return increases, strengthening the discount rate applied to a company's future cash flows. If high interest rates persist, the expansion of corporate multiples will be limited, thereby restricting stock price growth. Therefore, interest rate movements are a very important variable for stock valuation.

While some view big tech companies' large-scale AI investments as excessive, the prevailing view is that they are essential for survival in a competitive landscape. Companies are expanding AI investments, even issuing corporate bonds, as a strategy to secure future growth engines and maintain competitive advantage. The important question is whether these investments translate into actual performance gains. So far, positive signals, such as AI cloud revenue generation, are emerging, suggesting that it is not yet at an alarming stage of over-investment. This is interpreted as an unavoidable choice for long-term corporate growth.

As various macro issues, including geopolitical risks, come to the forefront, investor sentiment is shrinking. In this environment, funds tend to concentrate on large-cap stocks like the semiconductor giants, as investors seek safe havens. If interest rates remain high, the KOSDAQ market, which has many small and mid-cap stocks, will inevitably face increased investment burden and risks being marginalized. Investors' risk aversion is expected to strengthen, leading them to prefer stable large-cap stocks in uncertain situations.

As the average exchange rate has fallen from around 1,500 won in Q2 to the current 1,300 won level, corporate earnings for Q3 are expected to be mixed. Export-oriented companies that enjoyed high profits due to exchange rate effects in Q2 may experience a slowdown in Q3. Conversely, food, refining, and energy companies that import a lot of raw materials from overseas are likely to see improved performance in Q3 compared to Q2 due to reduced import costs from the falling exchange rate. Therefore, the Q3 earnings reports, to be released after mid-September, are expected to clearly show the varying impacts of exchange rate changes across different sectors.

Samsung Electronics announced that it will return 50% of its total free cash flow (FCF) generated over three years from 2024 to 2026 to shareholders. Specifically, it will implement a regular annual dividend of KRW 9.8 trillion, and conduct shareholder returns worth KRW 29.3 trillion in 2024 and 2025. This consists of KRW 20.9 trillion in cash dividends and KRW 8.4 trillion in share buybacks and cancellations. The shareholder return fund for 2026 will be the total FCF over three years minus the KRW 29.3 trillion already executed, estimated to be approximately KRW 90 trillion to 110 trillion. A cash dividend of around KRW 30 trillion is planned for Q3 2026.

Despite Samsung Electronics' announcement of a large-scale shareholder return policy, its stock price showed a sluggish trend. This is attributed to disappointment as the announced KRW 90-110 trillion scale was closer to the lower end compared to the market's expectation of up to KRW 150 trillion. In particular, the absence of a special dividend plan also failed to meet investor expectations. Many investors appear to have bought Samsung Electronics shares before the announcement and then engaged in short-term profit-taking after the announcement, driven by a 'sell the news' sentiment. Therefore, this week will require a process of digesting short-term selling, and the stock's full direction is expected to emerge from next week.

Samsung Electronics' shareholder return policy is expected to contribute to securing the stock's downside rigidity. However, analysis suggests that strong momentum for upward movement is still lacking. Investors should closely watch Nvidia's earnings announcement in the US next week and whether monetary policy direction is provided at the Jackson Hole meeting. If Nvidia's AI-related growth remains solid, or if the Jackson Hole meeting confirms the market's desired monetary policy stance, an upward movement within a box range can be expected, with the stock's downside supported. Therefore, rather than shrinking from uncertainty, a strategy of confirming market direction through these major events is necessary.