Samsung's shares continue to sink

An expanded US recall was ordered Oct 13, 2016 for Samsung Galaxy Note7 smartphones, including replacements for the devices plagued by exploding batteries.
An expanded US recall was ordered Oct 13, 2016 for Samsung Galaxy Note7 smartphones, including replacements for the devices plagued by exploding batteries. PHOTO: AFP

Three-day rout shaves $31.8b off its market value but some investors aren't worried

SEOUL • Foreign investors are braving the widest volatility in Samsung Electronics' shares in five years after a three-day rout shaved about US$23 billion (S$31.8 billion) off the company's market value, more than the size of Sri Lanka's stock market.

The debacle was on the back of Tuesday's announcement by the world's biggest phone maker that it was ending production of its problematic Galaxy Note7 smartphones, taking the drastic step of killing off a device in one of the deepest crises in its history.

It had already recalled the Note7 once last month after early models exploded, with the latest move coming after replacement phones were also reported to catch fire.

Troubles at the company, whose shares command a 17 per cent weighting on the benchmark Kospi index, come amid an already fragile Korean market. Overseas funds have pulled more than US$800 million this week from the nation's equities as prospects for higher US borrowing costs weigh on emerging markets.

But foreign investors are not too worried. "Samsung will come out of this episode relatively unscathed. Any impact would be temporary," said Mr Kar Tzen Chow, a fund manager at Affin Hwang Asset Management.

He is looking at the current price weakness to buy more shares.

TEMPORARY IMPACT

Samsung will come out of this episode relatively unscathed. Any impact would be temporary.

MR KAR TZEN CHOW, a fund manager at Affin Hwang Asset Management.

The shares sank 0.7 per cent on Wednesday, bringing the three- day slump to 10 per cent, the most since May 2012, after reaching a record high last Friday.

They plunged 8 per cent on Tuesday, and the declines dragged valuations to near the cheapest level in eight months. The stock climbed 1.4 per cent at yesterday's close, earlier surging as much as 3 per cent.

Not everyone is optimistic. The uncertainty over its brand reputation and reliability amid rising competition will be a big challenge to overcome, said Mr Samir Mehta, a Singapore-based senior fund manager at J. O. Hambro Capital Management. The stock is not cheap enough yet to buy, he added.

Samsung will suffer financially from halting production, but the main long-term impact will be on its brand and reputation, according to a BMI Research report. The Korean company on Wednesday cut its outlook for third-quarter operating profit and sales.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on October 14, 2016, with the headline 'Samsung's shares continue to sink'. Print Edition | Subscribe