[Into the Stocks] Samsung Electronics, Season of Favorable Winds vs. Short Covering

[Asia Economy Reporter Junho Hwang] "Gateway to 80,000 Samsung Electronics vs Short-term Supply and Demand Expansion."

The stock price of Samsung Electronics has become a deep concern for its 5.18 million shareholders. Despite the spread of the COVID-19 variant Omicron, foreign investors have been buying intensively, but conflicting forecasts have left them uncertain.

Recently, the stock market has become more volatile due to new negative factors. The World Health Organization designated Omicron as a new variant (on the 26th), and South Korea raised its benchmark interest rate (on the 25th), causing the KOSPI to drop by 2.41% on the 30th of last month. However, with Samsung Electronics, the leading stock, performing well, the KOSPI showed an upward trend for the following three trading days. Samsung Electronics only fell 1.38% on the 30th of last month but rebounded sharply by 4.35% on the 1st and 1.88% on the 2nd of this month. The main driver of the stock price rise was foreign investors. They net purchased 84.453 billion KRW on the 30th of last month, followed by 436.033 billion KRW on the 1st and 509.55 billion KRW on the 2nd, concentrating their buying. Over 1 trillion KRW flowed into Samsung Electronics.

This concentration can be seen as a preemptive response to improving business conditions. The spot price of DRAM fell 40% from $5.3 on March 22 to $3.168 on the 22nd of last month but rose 4.2% from the bottom to $3.301 on the 2nd of this month. The Chinese DRAM spot price also turned upward. Additionally, Samsung Electronics’ expected smartphone sales volume this year is projected at 71.87 million units, surpassing the previous estimate of 66.99 million units. In the TV market, Samsung Electronics’ QD OLED TV, to be newly launched next year, is expected to emerge as a new cash cow. Accordingly, Japanese Daiwa Securities (115,000 KRW) and Hong Kong-based CLSA (105,000 KRW) have revised their target prices upward, changing their previously pessimistic views.

Looking at this situation, it seems that the stock price bottom has been formed. However, there are criticisms that this is merely a ‘short covering’ effect by foreigners. Foreign investors have net sold 27 trillion KRW this year but net bought 2.06 trillion KRW and 1.8 trillion KRW in November and December, respectively. Despite increased uncertainty, they have net purchased. KTB Investment & Securities researcher Kyunghoon Kim analyzed, "The inflow of foreign funds is more likely a liquidation of accumulated short positions rather than a ‘trend formation,’ considering that the domestic stock market has been declining throughout the year." Short selling is a transaction where stocks are borrowed and sold in the market, waiting for the price to drop, then bought back at a lower price to return the stocks. Currently, foreign net buying is just a short-term buying spree occurring during the low-price purchase period of such short selling transactions. Researcher Kim emphasized, "Comparing the average short selling amount this year until the end of October, just before foreign net buying, with the cumulative foreign net buying volume since November, there is more than a 70% match."

This content was produced with the assistance of AI translation services.