The Resurgence of Preferred Stock Frenzy

Samsung Heavy Industries '3 Consecutive Gains' Followed by Sharp Rise... Caution Advised for Chase Buying

[Asia Economy Reporter Minji Lee] The preferred stock frenzy that appeared earlier last month is reemerging. Samsung Heavy Industries preferred stock, which had been in a sharp decline for a while, recorded the upper price limit for three consecutive days. Experts pointed out that since the stock price is soaring solely due to individual investors' purchases without any special positive factors, investors should be cautious about chasing the price.

According to the Korea Exchange on the 9th, the stock with the largest price difference rate between preferred and common shares was Samsung Heavy Industries preferred stock. As of the previous day, Samsung Heavy Industries common stock was priced at 5,720 KRW, and the preferred stock at 687,000 KRW, resulting in a price difference rate of -11,910%. The price difference rate (disparity rate) refers to the difference obtained by subtracting the preferred stock price from the common stock price; a higher disparity rate means a larger price gap between preferred and common shares. SK Networks preferred (-4,195%), Shinwon preferred (-4,000%), Seoul Food preferred (-2,631%), and KG Dongbu Steel preferred (-980%) also exceeded or approached a disparity rate of 1,000%.

Recently, the rapid rise in preferred stocks has reappeared. Following Samsung Heavy Industries hitting the upper price limit from the 6th, on the previous trading day, Samsung Heavy Industries preferred (29.87%), SK Networks preferred (29.94%), Dongbu Construction preferred (29.89%), Hyundai Construction preferred (29.83%), Namyang Dairy preferred (29.67%), and Taeyoung Construction preferred (29.60%) all recorded the upper price limit.

In the case of Samsung Heavy Industries preferred stock, the price traded at 407,500 KRW earlier this week rose to 843,000 KRW as of 10 a.m. on the day, with trading volume also increasing significantly. Early this month, the trading volume hovered around 37,000 to 50,000 shares, but as the upper price limit continued, the volume exceeded 360,000 shares at its peak. Previously, Samsung Heavy Industries preferred stock surged from 54,500 KRW on the 1st of last month to 740,000 KRW after hitting the upper price limit for 10 consecutive trading days. Due to the abnormal surge, the Korea Exchange suspended trading on the 9th, 12th, and 18th, but the upper price limit streak continued. On the 19th, the price seemed to continue its upward trend, soaring to 960,000 KRW during the session, but it soon reversed and plunged 68% from the peak to 310,000 KRW.

Preferred stocks, unlike common stocks, do not have voting rights but offer higher dividends at a lower price. However, since the volume is usually smaller than common stocks, the stock price can be highly volatile. For this reason, experts unanimously advise caution when chasing preferred stocks. Because the number of shares is small, the price can easily fall. A financial investment industry official said, "The stocks showing recent upward trends do not have significant dividend appeal," adding, "It can turn into a game of hot potato among individual investors, so careful judgment by investors is necessary."

Meanwhile, Hyundai Construction preferred, Shinwon preferred, and KG Dongbu Steel preferred have been designated as short-term overheated stocks, and Daewon Cable preferred and Dongbu Construction preferred are expected to be designated as short-term overheated stocks.