"Impact of Martial Law Aftermath" Foreigners Dump Samsung Electronics... Will Their 50% Stake Collapse? [Business & Issues]

Samsung Electronics Faces Imminent Collapse of 51% Foreign Ownership
Rising Risks Amid US-China Trade Dispute Escalation
"Must Restore Technological Competitiveness to Overcome Adversity"

Yonhap News

Samsung Electronics, often regarded as South Korea's "national stock" but with a high proportion of foreign investors, is facing the risk of losing its status as a true "national stock" due to a recent wave of concentrated selling by foreign investors. Amid worsening domestic and international challenges such as intensified trade conflicts between the U.S. and China and declining technological competitiveness, concerns are rising that the foreign ownership ratio could fall below 50%, especially with the added risk of martial law. While Samsung Electronics' foreign ownership ratio exceeded 56% as recently as July, it has now dropped to 51%. Experts predict that until Samsung Electronics demonstrates new technological competitiveness, it will be difficult to reverse this trend.

Increased Exchange Rate Burden Amid Martial Law Risk... Foreign Ownership Drops to 51%

According to the Korea Exchange, on the 6th, Samsung Electronics' stock price was 54,100 KRW, with a foreign ownership ratio of 51.14%. On the 14th of last month, when the stock price hit a yearly low of 49,900 KRW, the foreign ownership ratio was 51.72%. Despite the stock price rebound, the foreign ownership ratio actually fell by 0.58 percentage points.

Samsung Electronics' foreign ownership ratio was 54.05% at the beginning of the year and exceeded 56% in July, but continuous selling by foreign investors has steadily lowered the ratio. Even with the stock price rebound, the ongoing decline in foreign ownership has raised concerns that the ratio might temporarily fall below 50% again, as it did in 2022. Samsung Electronics experienced a temporary dip below 50% from December 6, 2022 (49.95%) to January 11, 2023 (49.99%).

There are two main reasons why foreign investors continue to sell Samsung Electronics shares. First, with the second term of the Donald Trump administration approaching, there are concerns that the U.S.-China trade dispute will intensify, significantly reducing Samsung Electronics' sales to China. Second, Samsung Electronics is losing ground to competitors in the technology race for high-bandwidth memory (HBM), an essential product for generative artificial intelligence (AI), which is currently the hottest topic and experiencing a sharp rally in the IT industry.

Additionally, the martial law incident on the 3rd has highlighted political instability and exchange rate risks in South Korea, lowering its external credibility. As a result, Samsung Electronics, a favorite among foreign investors, has become a focal point of selling pressure. According to the Seoul Foreign Exchange Brokerage, the won-dollar exchange rate was 1,380.50 KRW per dollar in early last month, staying in the 1,300 KRW range. However, following the martial law incident on the 3rd, it surged to 1,417.5 KRW and has since remained around 1,415?1,416 KRW.

Impact of U.S. Strengthened Export Controls on HBM and DRAM to China... Trump Risk Highlighted

UPI Yonhap News

On the 2nd (local time), the U.S. Department of Commerce's Bureau of Industry and Security (BIS) announced in the Federal Register that high-bandwidth memory (HBM) products would be added to the list of controlled exports to China. This move aims to restrict China's access to HBM, which is essential for AI development. HBM is a critical component used in the latest AI models, high-performance graphics, and servers.

The U.S. Department of Commerce is also applying the Foreign Direct Product Rule (FDPR) to HBM export controls, meaning that even HBM products manufactured in third countries could be considered U.S.-origin products subject to export restrictions if they meet certain criteria. This applies if U.S.-origin software, equipment, or technology was used in the product's design or manufacturing process. Since many global semiconductor companies use U.S.-origin software, equipment, and technology in their product design and manufacturing, most HBM products are expected to be subject to FDPR.

The global HBM market is led by Samsung Electronics, SK Hynix, and U.S.-based Micron, with Samsung Electronics potentially facing the greatest impact due to its large export volume to China. Samsung's older HBM products, known for stable yields and supply capabilities, became targets for stockpiling by Chinese companies such as Huawei, Baidu, and Tencent before the U.S. sanctions took effect. It is estimated that about 30% of Samsung Electronics' HBM sales originated from Chinese companies since early this year.

"NVIDIA Supply and Technological Competitiveness Recovery Are Key to Reversal"

Yonhap News

Experts analyze that although Samsung Electronics is facing multiple domestic and international challenges, investment sentiment will return if the company regains its technological competitiveness. Since Samsung lagged behind competitors in HBM investment and technology development before and after the generative AI market emerged, quickly closing the technology gap is essential to alleviate future uncertainties.

The most urgent task for Samsung Electronics, as seen by investors, is to pass the final quality test for supplying its 5th generation HBM product, 'HBM3E,' to NVIDIA. Once full-scale supply begins, Samsung can enter NVIDIA's supply chain, ride the AI semiconductor rally, and compete more aggressively with other competitors like SK Hynix.

Jongwook Lee, a researcher at Samsung Securities, stated, "While U.S. regulatory issues may cause concern among investors due to Samsung's sales to China, objectively, Chinese sales are irrelevant to the fundamental investment direction. If the technology gap is closed, the stock price will rise even without China; if not, sales to China are meaningless."

Seungwoo Lee, head of the research center at Eugene Investment & Securities, also pointed out, "Samsung's weakened competitiveness in HBM has damaged its image as 'Samsung of technology.' Fundamental recovery of competitiveness may take longer than expected, but openly addressing the issue rather than hiding it is a positive start to change."