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Foreign, South Korean investors duke it out over Samsung Electronics

[HONG KONG] The shares of South Korea's most-valuable company are in a tug of war.

South Korea's individual investors are emerging as staunch defenders of Samsung Electronics Co against bearish institutional Korean firms and foreign sellers as the tech giant faces an uncertain outlook.

Overseas stock pickers and South Korean institutions have sold about a combined US$6.6 billion net worth of Samsung stock this year, just as domestic individuals have bought about US$6 billion in the electronics giant, according to flow data compiled by Bloomberg from Korea Exchange. Samsung is the Korean company that's the most sold among foreigners and institutions, while it's the biggest buy for domestic retail investors, the data show.

"If you're a global investor right now the question is, ‘I've run tech meaningfully for the last five years, does it make sense for me to start rotating to other opportunities?' And I think you're seeing this," Norman Villamin, chief investment officer for private banking with Union Bancaire Privee, said in an interview in Hong Kong. The firm managed 128.4 billion Swiss francs (S$181.7 billion) at the end of June.

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As for domestic retail investors, many are sticking with the name and betting on its long-term growth, said Kim Nam-su, prime broker at Samsung Securities' wealth-management unit in Gangnam, Seoul. A 50-for-1 stock split earlier this year also may have encouraged some buying.

"Those who bought Samsung Electronics are long-term investors not swayed by concerns about the memory-chip industry," Mr Kim said. "Some of them bought the stock before the stock was split, believing it could rise with new inflow."

Samsung, which by itself accounts for about a fifth of the benchmark Kospi index, has lost 7.3 per cent in 2018 as of Sept 20 after almost doubling in value over the past two years. The company's key semiconductor business is under increasing pressure amid persistent concern that slowing demand for smartphones also means weaker chip sales.

"If you have a lot of shares in Samsung, it's time to reduce a bit," said Heo Pil-Seok, chief executive officer at Midas International Asset Management. "Its mobile phone business has been continuously bad, and the semiconductor industry is passing its peak."

Goldman Sachs Group Inc analysts removed Samsung from their conviction list last week, warning the supply and pricing issues that have plagued the wider industry all year may worsen into 2019. Last year, Morgan Stanley faced "strong" pushback from some investors after its analysts lowered Samsung's rating to equal-weight and slashed its price target.

"Everyone is cautious about Samsung Electronics," said Hyun Choi, head of equities at Barings Korea. "As the biggest stock in South Korea, it is being affected by so many factors: not just the semiconductor industry's circumstances, but also macro issues like inflow into emerging markets and the trade war."

Interestingly, one of the beneficiaries of this shift may be Samsung's smaller chip competitor, SK Hynix Inc. Foreign investors have bought a net US$1 billion in the stock this year, the most of any company in the Kospi for the group, while Korean institutions and individuals are both net sellers.

That may be due to SK Hynix being more attractive to short-term investors, who have traded the shares within a fairly tight range and not on long-term growth expectations, said Samsung Securities' Mr Kim. Since the end of June, foreigners have sold about US$680 million net of the company's stock.

Analysts are nowhere close to going full-bear on Samsung yet - the stock has 42 buy ratings, three holds and only one sell, with a consensus price target of 65,643 won implying a 39 per cent increase from Thursday's close.

"Some people say the stock may fall up to 15 per cent more from the current level, considering DRAM prices continue to fall next year," said Park Sung-shin, a fund manager at KTB Asset Management Co. "I think differently. The memory-chip industry is different from what we've seen in the past."

Industry consolidation means fewer players have greater control over supply and demand, and Samsung is near its bottom and unlikely to fall more than 5 per cent from current levels, Park said.

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