Foreign investors net-bought 7.387B won in preferred shares as Samsung family sells common shares for taxes

The KOSPI index broke through the 3,800-point mark for the first time in history on October 20. Samsung Electronics preferred shares (Samsung Electronics Class B shares) ranked as the top stock purchased by foreign investors in the Korean stock market.

Foreign investors net-bought 7.387 billion Korean won worth of Samsung Electronics preferred shares, while the company's common shares saw net-selling of 96.322 billion Korean won on the same day. Market observers analyzed that foreign investors chose to buy preferred shares as the price gap between common and preferred shares widened.

Preferred shares grant priority rights over common shares in dividends or residual asset distribution. However, they typically lack voting rights at shareholder meetings and trade at lower prices compared to common shares.

The closing prices of Samsung Electronics common and preferred shares on October 20 were 98,100 won and 76,000 won, respectively. The divergence rate -- the difference between the two stock prices -- stood at 22.5%. Considering the average divergence rate of 17.5% over the past year, the gap widened by 5 percentage points. In simpler terms, foreign investors stepped in as Samsung Electronics preferred shares became cheaper than usual relative to common shares.

Hong Ra-hee, honorary director of the Leeum Museum of Art, Lee Boo-jin, president of Hotel Shilla, and Lee Seo-hyun, president of Samsung C&T, are also cited as factors driving increased investment in preferred shares. The three Samsung family members decided to sell Samsung Electronics common shares to pay inheritance taxes.

They signed a trust agreement with Shinhan Bank on October 16 to dispose of 17,716,000 Samsung Electronics common shares. The contract period runs until April 30, 2026.

The Samsung Electronics common shares to be disposed of by Hong Ra-hee and others were valued at approximately 1.738 trillion Korean won based on the closing price on October 20, exceeding the company's daily average trading volume of 1.22 trillion Korean won over the past year. While the impact on short-term stock prices is limited due to staggered sales, concerns persist that consistent selling pressure on common shares could emerge as Samsung Electronics concludes its share buyback program.

Foreign investors have steadily accumulated both common and preferred shares amid the Korean stock market's rally. Notable examples include Doosan Corporation preferred shares, Hyundai Motor preferred shares, and LG Chem preferred shares. The widening divergence rate in preferred shares suggests they are being eyed as investment targets.

However, investors should note that preferred shares often have lower trading volumes than common shares, leading to potential price distortions. For instance, Solus Advanced Materials Class B shares have a divergence rate of 80% compared to its common shares.

Mid- and small-cap preferred shares, in particular, face liquidity risks, making it difficult to sell during sharp price declines. If investing in individual preferred shares is challenging, exchange-traded funds (ETFs) like the 'TIGER Preferred Shares' offer an alternative.

Samsung Preferred Shares Lead Foreign Buys as Price Gap Widens