Samsung Shareholder Returns Disappoint, Preferred Shares Plunge as Rotation Shifts Beyond Chips

Talk of an imminent listing of China's YMTC by year-end has raised concerns that Korea's chip industry will face added pressure. The possibility that fears of a Chinese chip oversupply could become reality is likely to weigh on sentiment across the domestic chip sector. Attention is focused in particular on the impact on the NAND flash market.

Despite the rally in Korea's two chip giants, including Samsung Electronics, shares of materials, parts and equipment (SMP) makers remain weak. Even companies that posted solid earnings have seen limited benefit. Lee Ji-eun, CEO of Easystock, said, "Looking at how the SMP names are moving these days, even when the two giants rise, they remain weak, and it looks like a different kind of upswing from before." She added, "If China-related issues emerge on top of that, they could face more downward pressure than upward." If China risks materialize, SMP firms could face further downside pressure.

Recently, Samsung Electronics' HBM shipments have been rising while SK hynix's have edged down. Some see this trend as a sign that Samsung could take the lead in the HBM4 market from next year. The view is based on export data, and changes in the HBM4 market are drawing attention.

CEO Lee Ji-eun said, "Some are saying Samsung could grab the upper hand in the HBM4 market from next year," adding, "There are also views that things could change again next year in terms of profitability." Some expect SK hynix to lead in HBM4 in the second half, but analysts also say Samsung could seize a turnaround opportunity in profitability from next year. However, this is an early read based on export data and requires further confirmation.

CEO Lee Ji-eun explained, "The market has been disappointed across Samsung overall, so the preferred shares are coming under more additional downward pressure." In particular, the discount between preferred and common shares briefly widened into the 30% range, pushing the decline even further.

Given that the average discount had been around 18%, this drop appears to reflect the fading of dividend expectations along with profit-taking on recent short-term gains. CEO Lee Ji-eun added, "The discount had widened to around 30%, and when you assume an average discount of about 18%, some were saying on Friday that it was a good time to buy Samsung preferred shares. Now it looks like all the declines from that time are being given back."

Kakao announced it will spin off its business units into Kakao AI and Kakao X to boost efficiency and focus on artificial intelligence (AI). The split is scheduled to list on January 1 next year, and the market has reacted negatively. CEO Lee Ji-eun said, "Kakao just announced this split, and last week there was a spin-off. It's splitting into Kakao AI and Kakao X, so it's dividing its business units, but the market simply dislikes Kakao showing this kind of splitting within its group."

Some worry that frequent spin-offs could dilute corporate value and act as a discount factor. There is also skepticism about whether simply dividing business units is promising without a new AI model. CEO Lee Ji-eun said, "It takes too much time, and unless there is a new AI model, the market seems to think it's unlikely to be promising," conveying the market's disappointment.

The crypto market has recently performed strongly, with bitcoin breaking above $70,000. This is seen as reflecting expectations for Donald Trump, the former president, to win and his crypto-friendly policy stance. In particular, as Trump moves to push the CLARITY Act through, expectations are growing that he will keep driving the bitcoin market. CEO Lee Ji-eun said, "Trump's stance is that he's trying to pass the CLARITY Act," adding, "Ahead of the midterm elections, there are talks that Trump will keep pushing the bitcoin market, and as bitcoin rises, crypto-related companies are also seeing their share prices climb today." Accordingly, crypto theme stocks and bitcoin-related shares are rising together.

Korea Zinc posted strong results in its second-quarter earnings report, drawing market expectations. The stock is now attempting to break through its 120-day moving average resistance, a level that has been important in the past. CEO Lee Ji-eun said, "Korea Zinc also reported good results. Its Q2 earnings were strong, and it's now trying to break through resistance. Last time, the 120-day line stopped it at this price level and it fell back." If it successfully breaks through the 120-day resistance this time, a move above the short-term trading range is expected, which could support further share price gains.

LNF in particular rose 17% today and drew the market's attention. CEO Lee Ji-eun explained, "For secondary batteries, there's momentum from Tesla's rise and from lithium prices going up, and LNF is up 17%."

This shows a shift in market capital flows, with the secondary battery sector moving strongly while the chip sector is consolidating, rather than biotech. LNF is seen as having room for further gains once it breaks above 130,000 won, and it is drawing more attention because it holds a leading position in energy storage systems (ESS) and LFP (lithium iron phosphate) batteries.

CEO Lee Ji-eun added, "What's meaningful today is that when chips rest, it's not biotech that moves but secondary batteries that move more strongly. On LFP, LNF was the first to have production issues, so it seems to be reacting the most." This is acting as an important momentum driver for the broader rise in the secondary battery sector.

Despite Samsung Electronics' shareholder return announcement, its share price has failed to break out of its trading range, and market participants have been selling. CEO Lee Ji-eun said, "It's a pity that it didn't work as a catalyst to break out of this range, so I think market participants are selling for that reason," diagnosing the current situation. However, she does not view the recent price action as a broken trend, but as a consolidation within the trading range.

She analyzes that although the shareholder return policy did not serve as a catalyst to break out of the range, it can still work as support on the downside. Accordingly, she advised investors holding Samsung shares to maintain their positions in the current situation. "It hasn't broken out of the range, but I believe the shareholder return policy can sufficiently work as a factor that generates downside support, so I think those holding shares would do well to maintain their position."

Signs are emerging in the market of a rotational rally, in which buying that had concentrated in the chip sector is spreading to other industries. CEO Lee Ji-eun said, "It's hard to say people are selling the market itself; it's more that they're selling chips. This pattern has been showing up in the market a lot recently." She noted this resembles the U.S. market, suggesting the character of the market is changing in the second half of the year.

CEO Lee Ji-eun said this kind of rotation has continued since August and expects the trend to persist for the time being. This week, several major events that could significantly affect the market are scheduled, including the Hyundai Motor Investor Day, Nvidia's earnings release and the Jackson Hole meeting, and attention is focused on how they will act as variables for the rotational rally. Capital flows are likely to spread across a range of industries rather than staying in one sector.

Korea's cosmetics exports are performing well, and reports indicate that growth in the European market has overtaken North American results. This is interpreted as evidence of the solid structure of cosmetics OEM and ODM companies and the competitiveness of K-beauty. CEO Lee Ji-eun said, "There are reports that Europe has overtaken North America, so I think cosmetics should be watched all year," offering an optimistic outlook.

The third quarter is generally known as the off-season for the cosmetics industry, but analysts say that if the current trend holds, cosmetics stocks could stay strong through year-end despite off-season concerns. CEO Lee Ji-eun added, "The third quarter is normally the off-season. But even if it isn't a chase-buying situation, I think cosmetics is a sector we can keep watching in the third and fourth quarters whenever shares dip." She named cosmetics as a sector worth continued attention through buy-on-dip strategies.

The sharp drop in Samsung Electronics is seen as short-term capital outflow stemming from market disappointment over the in-kind dividend. However, a different view has been raised regarding the reaction of foreign investors, who hold nearly half of Samsung Electronics' shares. CEO Lee Ji-eun explained, "Disappointment over the in-kind dividend has largely taken hold, but foreigners who hold nearly half of Samsung Electronics, if you roughly say the dividend returns around 50 trillion won, the question is whether foreigners will buy Samsung or not. With the won also strong, whether that shows up in the afternoon session will decide things."

CEO Lee Ji-eun judged that foreign investors are not disappointed enough to matter with this shareholder return policy, and forecast that they could show a different pattern in the afternoon session. Accordingly, changes in foreign investor flows during the afternoon session are expected to be an important turning point for Samsung's share price trend.