Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
Samsung Electronics' stock gets bullish with strengthened won
By Anna J. Park
Foreign investors lead Samsung Electronics stock's soaring move
By Anna J. Park
Samsung Electronics' stock price has been on a strong upward trend this month, after foreign investors turned to net buying. As of Wednesday, the company's share price has increased by 12.8 percent this month alone, reaching a new record high of 66,300 won on Nov. 16. With the strong gains, Samsung Electronics' market cap reached 386.84 trillion won, Wednesday.
Market watchers said that foreign investors' aggressive buying of the shares led the stock's recent rally. They bought the stock for nine straight trading days from Nov. 5 to Nov. 17, their longest buying streak of the year, buying 1.7 trillion won worth of shares this month, and making them the number one choice for foreign investors.
There are various reasons behind their recent net-buying position ― one being the company's solid performance proved by its earnings surprises recorded in the second and third quarters of the year. Rosy expectations for the semi-conductor sector in 2021 also played a part.
Samsung Electronics' operating profit for the second quarter stood at 8.14 trillion won, but jumped to 12.35 trillion won for the third. Accumulative operating profits for the three quarters this year have already reached 26.9 trillion won, similar to the company's annual operating profit for last year.
Expectations on increased dividends have also made investors purchase the stock, as the global chipmaker announced back in late 2017 that it would focus on returning more cash dividends to shareholders until the year 2020.
Another significant external element that has made investors bullish is the Korean won's recent appreciation against the dollar, which many analysts say is a key factor encouraging the buying streak.
Inverse correlation between weak dollar and Samsung Electronics stock price
The won-dollar exchange rate has continued to fall, meaning Korean won has strengthened against the greenback. On Wednesday, the exchange rate was 1,103.8 won per dollar, down 2.8 won from the previous session and the lowest since December 2018.
The won-dollar exchange rate is apparently having an inverse correlation with Samsung Electronics' share price. According to a study conducted by NH Investment & Securities, the won-dollar exchange rate and Samsung Electronics stock price have moved in an inverse manner over the past 10 years. This means that when dollar weakens ― and the won strengthens ― the electronics manufacturing conglomerate's stock price tends to rise.
Market experts explain that this is because foreign investors' money flows into emerging markets when the dollar weakens, as they can receive additional gains from exchange rate profits on top of investment returns.
“Case analyses of the past 10 years shows that if investors purchased Samsung Electronics shares when the won-dollar exchange rate was high, they could have earned about a 29 percent profit on average,” said Pyun Deuk-hyun, the vice president of asset management strategy from NH Investment & Securities.
This year's stock trading history backs this theory up. In 2016, when the won-dollar exchange rate generally fell from late February to early September, Samsung Electronics' stock price increased by 39 percent.
Experts explain that this is mainly because there's a tendency for foreign investors to buy emerging markets' blue-chips when the dollar weakens, and the semiconductor sector is Korea's top selling industry in the global market.
“Based on the weak dollar, Korean stock market's attractiveness to foreign investors has increased. When they decide to invest in the Korean market, semiconductors and secondary battery related stocks would naturally be their first choice of investment,” Kim Ji-san, research head of Kiwoom Securities, explained, adding that Samsung Electronics' stock price still has more room to increase with a positive outlook for the semiconductor sector.
Samsung Electronics' relatively low price earnings ratio (PER) compared to other global firms also makes the stock look attractive to foreign investors, aiming to buy quality shares on emerging markets amid a weakening dollar. The company's PER stood at around 15.91 as of Wednesday.
Various brokerage firms' reports expect the stock price to reach 80,000 won in the near future. Hana Financial Investment suggested one of the highest target prices of 86,000 won, followed by Yuanta's 85,000 won and Daishin Securities and KB Securities' 80,000 won.