Samsung Electronics Preferred Shares Plummet Amid Market Disappointment Over Shareholder Returns, Funds Shifting Away From Semiconductors

Speculation about the year-end IPO of China's Yangtze Memory Technologies Co. (YMTC) is raising concerns that it will weigh heavily on the domestic semiconductor industry. The possibility of China-induced semiconductor oversupply becoming a reality could lead to a psychological contraction across the entire domestic semiconductor industry. Particular attention is being paid to its potential impact on the NAND flash market.

Despite the recent rally of Korea's top two semiconductor companies like Samsung Electronics, the stock prices of SooBujang (materials, parts, and equipment) companies remain weak. Even some companies that posted strong earnings have seen limited benefits. Lee Ji-eun, CEO of Egis Stock, analyzed, "Looking at the recent movements of SooBujang, even if the top two perform well, they seem a bit weak, showing a different kind of rally than before." She added, "If issues from China arise, there's a higher possibility of downward pressure rather than upward." If the China risk materializes, SooBujang companies may face additional downward pressure.

Recently, while SK Hynix's HBM shipments have slightly decreased, Samsung Electronics' shipments are on an upward trend. Some observers suggest that based on this trend, Samsung Electronics could gain leadership in the HBM4 market starting next year. This is based on recent export data, and changes in the HBM4 market are drawing attention.

CEO Lee Ji-eun stated, "Some are saying that Samsung Electronics could gain the upper hand in the HBM4 market starting next year," adding, "There are also discussions that profitability could change next year." Although there are forecasts that SK Hynix will lead the HBM4 market in the second half of the year, analysis also suggests that Samsung Electronics could seize an opportunity for a turnaround in terms of profitability starting next year. However, as this is an initial observation based on export data, further confirmation is needed.

After Samsung Electronics announced its shareholder return policy, market disappointment spread, causing preferred shares to fall sharply. CEO Lee Ji-eun explained, "Overall market disappointment in Samsung Electronics is causing preferred shares to face even more additional downward pressure." In particular, the discount rate between preferred and common shares widened to over 30% at one point, further amplifying the decline.

Considering that the average discount rate was around 18% in the past, this decline appears to be due to the disappearance of dividend expectations and the emergence of profit-taking sales from short-term rapid gains. CEO Lee Ji-eun added, "The discount rate was around 30%, so when considering the average discount rate of 18%, some were saying that buying Samsung Electronics preferred shares was good on Friday, but it seems like all those gains from the previous decline are now being given back."

Kakao announced a spin-off of its business units into Kakao AI and Kakao X for artificial intelligence (AI) and business efficiency. The market has reacted negatively to this decision, which is scheduled for a spin-off listing on January 1st next year. CEO Lee Ji-eun pointed out, "Kakao had a spin-off last week, where they split into Kakao AI and Kakao X, dividing the business units themselves, but the market dislikes any kind of spin-off that Kakao demonstrates within its group structure."

Concerns are being raised in the market that frequent spin-offs could lead to dilution of corporate value and act as a discount factor. Furthermore, there is skepticism about whether simply dividing business units will be promising without new AI-related models. CEO Lee Ji-eun conveyed the market's disappointment, stating, "It takes too much time, and without new AI-related models, the market seems to view it as questionable whether this will be promising."

The virtual asset market has recently seen strong performance, with Bitcoin surpassing $70,000. This is interpreted as a reflection of expectations for former President Donald Trump's potential election and his crypto-friendly policy stance. In particular, Trump's moves to push for the passage of the Clarity Act are leading to forecasts that he will continue to drive the Bitcoin market. CEO Lee Ji-eun stated, "Trump's stance itself shows moves to pass the Clarity Act," adding, "There are talks that Trump will continuously drive the Bitcoin market ahead of the midterm elections, and as Bitcoin rises, overall virtual asset-related companies are also seeing their prices go up today." Consequently, virtual asset theme stocks and Bitcoin-related stocks are also rising in tandem.

Korea Zinc is drawing market attention after reporting excellent results in its Q2 earnings announcement. It is currently attempting to break through the 120-day moving average resistance, which has historically been an important resistance level. CEO Lee Ji-eun commented, "Korea Zinc also had good earnings this time. Their Q2 earnings were good, and they are now going to break through resistance. The 120-day moving average resistance previously saw the price get blocked and fall at this price level." If it successfully breaks through the 120-day resistance this time, it is expected to break out of its short-term trading range upwards, potentially leading to further stock price increases.

Recently, secondary battery-related stocks have shown a strong rebound, a combined result of rising Tesla stock prices and expectations for lithium price recovery. In particular, LNF surged by 17% today, drawing market attention. CEO Lee Ji-eun explained, "First, for secondary battery-related stocks, there's momentum from Tesla's rise and increasing lithium prices, and LNF is up by as much as 17%."

This suggests a shift in market fund flows, as the secondary battery sector is moving strongly when the semiconductor sector is undergoing correction, rather than the bio sector. If LNF breaks through 130,000 won, further upward movement is anticipated, and it is particularly drawing attention for securing a leading position in ESS (Energy Storage System) and LFP (Lithium Iron Phosphate) battery fields.

CEO Lee Ji-eun added, "What's significant today is that when semiconductors are resting, it's not biotech but the secondary battery sector that's moving strongly, and regarding LFP, LNF was actually the first mover with production issues, so it seems to be reacting most strongly." This is acting as a significant momentum driving the overall rise in the secondary battery sector.

Despite Samsung Electronics' recent shareholder return policy announcement, its stock price has failed to break out of its trading range, leading to selling by market participants. CEO Lee Ji-eun assessed the current situation, stating, "It's a pity that this didn't serve as a catalyst to break through this trading range. So, I think market participants might be selling." However, Lee Ji-eun does not view the current stock price movement as a broken trend but rather a correction within the trading range.

She analyzed that while this shareholder return policy may not have been a catalyst for a breakout, it could sufficiently act as a factor to generate downside support. Therefore, CEO Lee Ji-eun suggested that investors holding Samsung Electronics shares should maintain a holding stance in the current situation. "I believe this shareholder return policy can sufficiently act as a factor to generate downside support, even if it didn't break through the trading range, so I think those who hold shares should maintain their holding stance."

Recently, signs of a rotational market have appeared, where buying previously concentrated in the semiconductor sector is spreading to other industries. CEO Lee Ji-eun analyzed, "It seems more like selling in the semiconductor sector rather than selling off the entire market. These kinds of patterns have appeared quite often in the market recently." This mirrors trends in the U.S. market, suggesting that the market's character is changing as the second half progresses.

CEO Lee Ji-eun predicted that this rotational rally has been ongoing since August and is likely to continue for some time. This week, major events that could significantly impact the market are scheduled, including Hyundai Motor's Investor Day, Nvidia's earnings announcement, and the Jackson Hole Meeting, so how these will affect the rotational market is drawing attention. It is highly likely that market funds will not remain in specific sectors but will diversify across various industries.

Domestic cosmetics exports are showing strong performance, with news that growth in the European market has surpassed North American results. This is interpreted as evidence of the robust structure of cosmetics OEM/ODM companies and the competitiveness of K-beauty. CEO Lee Ji-eun commented, "There's talk that Europe has now surpassed North America, so I think we should be watching cosmetics all year long, shouldn't we?" offering a positive outlook.

Although the third quarter is generally known as the off-season for the cosmetics industry, under the current trends, analysis suggests that the strength of cosmetics stocks could continue until the end of the year, despite off-season concerns. CEO Lee Ji-eun added, "The third quarter is usually the off-season. But I believe cosmetics will be a sector to keep watching, even if it's not through chasing, but during dips, throughout the third and fourth quarters." She highlighted cosmetics as a sector worth continuous attention through a dip-buying strategy.

Samsung Electronics' sharp decline is analyzed as a short-term fund outflow stemming from market disappointment over the in-kind dividend. However, some suggest that the reaction of foreign investors, who hold nearly half of Samsung Electronics' shares, might be different. CEO Lee Ji-eun explained, "Most of the disappointment is centered around the in-kind dividend, but if we roughly consider that the dividend amounts to about 50 trillion won for foreigners who own nearly half of Samsung Electronics, whether foreigners will buy Samsung Electronics or not, especially with the won also strengthening, will be determined in the afternoon session."

CEO Lee Ji-eun believes that foreign investors are not largely disappointed by this shareholder return policy and predicts that they might show a different behavior in the afternoon session. Therefore, fluctuations in foreign investor supply and demand in the afternoon are expected to be a crucial turning point for Samsung Electronics' stock price trajectory.