Samsung Group Stock ETF Draining Funds... Additional Headwind from 'Samsung Saengmyeong Act'?

Increase in Overall ETF Fund Inflows This Year
Samsung Life Insurance, Samsung Electronics May Need to Sell Stocks Worth 23 Trillion Won

[Asia Economy Reporter Kwon Jae-hee] Concerns are rising that the amendment to the Insurance Business Act, known as the 'Samsung Life Insurance Act,' which was discarded in the previous National Assembly, will accelerate the outflow of funds from Samsung Group stock exchange-traded funds (ETFs). Although there has been an increase in overall ETF inflows this year, outflows continue in Samsung Group stock ETFs. Amid this, there are also observations that the 'Samsung Life Insurance Act' could further fuel the outflow of funds from Samsung Group stock ETFs.

According to the Korea Exchange on the 29th, ETFs tracking Samsung Group stocks closed slightly down the previous day. The 'ACE Samsung Group Sector Weighted' ETF closed at 14,425 KRW, down 0.55% from the previous trading day. 'KODEX Samsung Group' rose 0.58% to 8,630 KRW, and 'TIGER Samsung Group Fundamental' closed up 0.14% at 10,485 KRW.

Interest in Samsung Group stocks has increased due to the amendment to the Insurance Business Act, dubbed the 'Samsung Dismantling Act.' The bill includes a provision requiring insurance companies to evaluate assets such as stocks and bonds they hold at market value rather than the initial purchase price (acquisition cost). The problem is that insurance companies are prohibited from holding affiliate stocks exceeding 3% of their total assets. Samsung Life Insurance must sell about 23 trillion KRW worth of Samsung Electronics shares it holds. This 23 trillion KRW is comparable to the market capitalization of domestic companies like Kakao and Samsung C&T. The securities industry expects that if the Samsung Life Insurance Act passes, it will impact the entire KOSPI.

Especially as outflows from ETFs tracking Samsung Group stocks have continued this year, there are concerns that this trend will accelerate if the Samsung Life Insurance Act is passed. According to the securities information portal SaveRO, from the first trading day of the year on January 3 to December 23, the total net assets of all ETFs increased by 5.2495 trillion KRW to 79.051 trillion KRW. In contrast, among ETF types, the net assets of group stock ETFs decreased by 209.4 billion KRW to 1.5477 trillion KRW. Notably, net assets of Samsung Group stock ETFs decreased by 222.7 billion KRW, a larger decline than the total decrease in group stocks. Alongside Samsung Group stock ETFs, Hyundai Motor within the group recorded an increase of 22.7 billion KRW, while LG saw a decrease of 4.6 billion KRW.

Choi Nam-gon, a researcher at Yuanta Securities, analyzed, "The scale of buybacks?selling and repurchasing shares held by Samsung Life Insurance and Samsung C&T due to the Samsung Life Insurance Act?is about 46 trillion KRW, which is 53% of the shareholder return scale of Samsung Electronics over the past 10 years." He added, "Since this volume does not affect the circulating shares in the market, it is unlikely to lead to a rise in Samsung Electronics' stock price." He further noted, "Samsung C&T also receives 59% of its 1.54 trillion KRW dividend income from Samsung Electronics, so if it disposes of Samsung Electronics shares, dividends will also be reduced."