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Report Highlights Samsung Stock Sold Off In January

January 20, 2016 - Written By David Steele

Global stockmarkets are fickle and quite often defy logic. Stock prices appear to move in an opposite direction to the headline news, although there are very good reasons for this. One is that a stock price is based on a combination of factors including the projected value of the company, or in classic terms its dividends, at some point in the future. Thus, whilst a business might announce record profits, device sales or similar, the stockmarket is looking at the possibility that the next results won’t be as impressive and the stock price will drop. Stock prices also change depending on supply and demand and, simply put, what an investor will pay for a share. When more customers are buying stock than are selling, the price tends to rise, and vice-versa.

We have seen a Korean analyst report that says: “Samsung Electronics, Korea’s most valuable company according to all financial analyses, is losing its luster because the company’s key businesses are under pressure, resulting in foreign investors reducing their holdings of Samsung Electronics stocks.” The report goes on to explain that foreign investors sold almost 2 trillion won worth of stocks in the period 1 January to 18 January 2016, which is more than half of the 3.5 trillion won worth of stocks sold during the whole of 2015. It is no surprise that Samsung was one of the most sold stocks, amounting to 540 billion won in the period, but there may be structural reasons for this over and above Samsung’s declining outlook: Samsung is one of the largest and most prominent companies in the both the Korean stock exchange and the global consumer electronics indices. Because of this, if a fund manager wishes to provide a portfolio with an investment into either Korea or consumer electronics, Samsung is one of the companies he or she will invest in. We often see portfolio managers readjusting their stock holdings at the beginning of a year.

As for the Samsung business itself, yes this is a company under pressure. Samsung’s smartphone and tablet business has struggled to make headway, but let’s remember that Samsung is the market leader in many, many regions of the world. Theirs is the lead to lose. In 2015, Samsung’s semiconductor business produced what has been considered to be one of the finest System-on-Chips in the market, the Exynos 7420, plus new, high performance memory modules. Yes, the smartphone and semiconductor businesses are experiencing what the report calls “market turbulence,” but Samsung have a solid portfolio of products in addition to these. Their AMOLED screen panels are one of the finest mobile display technologies in the world today and in high demand. We will see the news ebb and flow regarding Samsung’s semiconductor businesses as this is a fiercely competitive market; Samsung will win and lose contracts as they vie with competitors. We also expect the new Galaxy flagship device to be officially unveiled in a few weeks time and this will likely cause the stock price to fluctuate as investors try to second guess the impact of their new smartphone. Samsung’s smartphone and tablet business also faces stiff competition from a number of other manufacturers selling high quality devices at a cheaper price.