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[News Focus] Foreign ownership of Samsung Electronics hits 29-month low

Short sellers expand presence on Korea Exchange

The signboard at the dealing room of Hana Bank in Seoul shows that the Kospi loses by 39.87 points, while the US dollar climbs by 5.8 won on Wednesday. (Yonhap)
The signboard at the dealing room of Hana Bank in Seoul shows that the Kospi loses by 39.87 points, while the US dollar climbs by 5.8 won on Wednesday. (Yonhap)

SEJONG -- Foreign investors’ total stake in Samsung Electronics dipped to the lowest level in over two years Wednesday, with their daily trading of the nation’s flagship stock drawing close attention.

The market’s interest comes as short selling -- which had been under a provisional ban for about 14 months -- has been allowed again in the local stock market since May 3.

While most retail investors had called for the government not to lift the ban, or issue the ban permanently, some officials engaging in the brokerage industry argued that a longer-than-expected short sale ban would have negative effects on the local capital market.

Short selling is a trading strategy in which investors are entitled to sell “borrowed” stocks at particular prices. They can reap gains by repurchasing the stocks at lower prices later.

Foreign investors have become active net sellers of Samsung Electronics stocks over the past seven trading sessions after the ban was lifted, with the sell-off thought by some to have been fueled by massive sales of borrowed stocks.

Foreign shareholding in the chipmaker declined to 54.07 percent Wednesday, which marked the lowest in 29 months since they held a 51.85 percent stake on Dec. 11, 2018.

This contrasts to 56.29 percent on Nov. 12, 2020, and 55.03 percent a year earlier on May 12, 2020. These figures were recorded when the short sale ban was in effect.

On Wednesday, Samsung Electronics topped the list, among stocks listed on the Korea Exchange, in the balance of short selling with a 92.4 billion won ($82 million) worth of short sales. During the previous session, the chipmaker also ranked No. 1 in the same trading segment with 84.1 billion won of short sales.

Its stock price, which surged to 90,600 won four months earlier (on Jan. 12, 2021), closed at 80,000 won on Wednesday.

Though retail investors are also allowed to conduct short selling, most of the investors who took short positions on Samsung Electronics were foreign and local institutions.

Likewise, some other blue chip companies have been the target of short sellers: The short sale trading volume on Wednesday posted a 48.2 billion won for Hyundai Motor, 33 billion won for LG Display and 27 billion won for Naver.

On the same day, the collective short selling on the Korea Exchange reached 815.9 billion won, increasing for the third consecutive trading session.

Online commenters criticized the remarks of some financial regulatory officials and equities researchers, who had said short selling “has the proper function” of tackling an overheated stock market.

“It this (falling stock prices) what they want? On the contrary, officials have continued to keep silent over the adverse effect of short selling,” said a commenter.

The authority reiterated that it would provide a level playing field between institutions and individuals by offering the latter the right of short selling.

Though individuals have recently been given the right to engage in short selling, like foreign and local institutions have had, commenters have pointed out that the system is unequal.

“There is no designated payment due for short selling by institutions. They can pay back and reap gains until they indefinitely wait for the timing, when stock prices sink,” a commenter said. “In contrast, retail investors are obliged to repurchase the borrowed stocks within 60 days.”

In March 2020, the Financial Services Commission suspended short selling as the first-tier Kospi plunged below 1,500 points in the wake of the novel coronavirus.

Though the regulator had sought to lift the ban six months later on September 2020, it delayed the resumption by six more months in the face of a backlash from individual investors.

The removal of the ban was delayed two more months to May 2021, but the retail investors’ request of a permanent ban was eventually dismissed.

By Kim Yon-se (kys@heraldcorp.com)
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