After a two-day record-breaking rally, Samsung Electronics shares on Monday took a breather, closing 0.6 percent lower than the previous session.

As soon as the Seoul market opened, Samsung Electronics shot to another intraday high of 1,692,000 won, but lost all of its gains on heavy foreign profit-taking. After choppy trading, it settled at 1,665,000 won at close. 


Local stock analysts seem mixed on the future direction of the market bellwether stock, which alone accounts for nearly 20 percent of Korea’s stock market.

Some say this is just the beginning of a strong bull run, driven by an upward earnings momentum and shareholder incentives, while others are cautious due to the seemingly dwindling foreign appetite for the stock.

Rhoo Yong-seok of Hyundai Securities sees Monday’s retreat as a temporary correction in Samsung Electronics’ rise.

“Samsung Electronics’ stock value is being re-evaluated on a combination of three factors -- strong earnings outlook, shareholder incentives and future growth prospects via automotive technology,” he said in a report.

The firm, which in the past four consecutive quarters reported forecast-beating profits, is widely expected to report strong results again in the third quarter, he added.

“The biggest factor that affects a company’s stock price is its performance. Foreign and institutional investors won’t turn away from the firm’s increasing appeal,” he said.

Looking just at the supply and demand conditions, the main force behind Samsung Electronics’ recent rally has been global passive funds, said Lee Kyung-min of Daishin Securities.

Passive funds simply track the performance of a market index or portfolio, while active funds try to beat it.

“Samsung Electronics stock is getting a boost from global liquidity, particularly the passive funds, as it is the most preferred stock by emerging market-focused exchange-traded funds,” he explained.

But overall, foreign investors have been cutting their holdings of Samsung Electronics recently, he pointed out

On Aug. 1, foreigners owned 51.25 percent of the electronics giant, but that is now reduced to 51.07 percent.

“This means active funds are selling Samsung Electronics more than the inflow of passive investment,” he said, adding that if the stock reaches higher, there is a chance that more active funds opt to realize profit.

Some say the key player buttressing the stock price has been none other than Samsung Electronics itself.

The world’s No. 1 smartphone maker is currently in the process of buying its own shares worth 1.8 trillion won, the fourth and last installment of an 11.3 trillion won share buyback and cancellation scheme.

As of the end of July, when the third program was complete, the company had spent 9.5 trillion won in buying 5.6 million shares and 2 million preferred shares, and cancelled them.

This has reduced the number of shares trading in the market and thus boosted the value of remaining shares.

Yang Hae-jung from eBest Securities, however, sees limits in Samsung Electronics’ upward momentum.

“Investors preferring growth stocks won’t consider Samsung Electronics very positively, because the company, having reached a status of a major global player, can’t pull off high growth as it did in the past,” the pundit said.
By Lee Sun-young  (milaya@heraldcorp.com)