Foreign investors remain reluctant to put more money into tech behemoth Samsung Electronics Co. and other big-cap South Korean firms despite the companies’ concerted efforts to promote shareholder value and streamline governance structure, market watchers say.
Foreigners’ lukewarm attitude runs counter to analysts’ rosy expectations that major firms’ recent announcements of stock buyback plans and other reform measures would help ease the so-called Korea discount, or offshore investors’ undervaluation of South Korean stocks.
Analysts point out that foreign investors are skeptical of local firms’ pledges and appear wary of emerging markets and risky assets amid escalating concerns over a possible U.S. interest rate hike in December and other unfavorable external factors.
According to data compiled by the Financial Supervisory Service, overseas investors were net sellers of South Korean stocks between June and September, with their net selling marking the highest level in 26 months in August. Last month, they shifted into net buying mode.
Despite foreigners’ position and the announcement of a massive stock buyback scheme, Samsung Electronics Co., the top-cap company in the main stock market, has failed to attract offshore investors back.
As of last week, foreigners owned 50.5 percent of Samsung, which is the lowest since April 2014 when the figure came to 50.48 percent.
In particular, foreign investors have sold off 304.3 billion won ($266 million) of the tech giant’s shares since Oct. 29, when Samsung unveiled the plan to repurchase its own shares worth 11.3 trillion won over the next year in an effort to boost shareholder value.
“The buyback plan is seen by foreign investors as a chance to lock in profits from earlier gains, rather than causing them to want to own the shares for a longer-term period,” said Lee Kyung-min, researcher at Daeshin Securities.
“We’ve see similar patterns that the repurchase triggers a selling binge by foreigners,” the researcher said, “The trend is likely to continue for the time being.”
While uncertainties linger over a potential rate hike by the United States amid a protracted economic downturn, offshore investors also appear to cast doubt on companies’ efforts to improve their governance structure, analysts said.
According to the environmental, social and governance index evaluated by the Switzerland-based investment specialist, RobecoSAM, South Korea ranks 37th out of 60 countries in its sustainability list.
“The data revealed that South Korea’s social circumstances and governance structure are poorer not only than advanced countries but some emerging economies,” said Ahn Nam-ki, a researcher at the Korea Center for International Finance.
While Sweden topped the list, Great Britain came in fourth, the United States in 16th and Japan in 21st. Such emerging economies as the Czech Republic, Hungary, and Chile made it into the top 30.
“Though some large conglomerates have taken steps to improve their governance structure, more active, longer-term actions are needed to build credibility among investors,” he added.
Samsung Group has been simplifying its governance structure with a series of mergers and asset sales, and Lotte Group has launched a task force on reform following criticism over its murky ownership structure while planning to have Hotel Lotte make a stock market debut.
As of end-October, foreigners’ stock ownership totaled 441.8 trillion won, accounting for 29.3 percent of the total market capitalization. (Yonhap).