Foreign institutional investors have upped short selling of Samsung Electronics Co.’s stocks from mid-May, sending shares of short selling against the total transactions involving the company on Seoul bourse on May 20 to fresh record high of near 30 percent in recent two years.

Debit balance in margin accounts of those investors also marked record high of 5.6 trillion won ($4.75 billion) in 11 months, despite Samsung`s better-than-expected first-quarter earnings and rosy prospect for the next quarter, amid uncertainties for its later performance during the latter half and market jitters for a 5 percent partial inclusion of China A-shares in Morgan Stanley Capital International (MSCI) emerging markets index, according to the investment banking industry Friday.

On 11 business days falling in two weeks from May 12 – when Korea Composite Stock Price Index (Kospi) fell under threshold of 1980 to 1,977.49 – to 26, the average short selling volume of Samsung Electric accounted for 21.24 percent of total transactions. The figure is about four times those of two periods – 5.1 percent during the month of April and 5.7 percent between May 2 and 11.

In particular, on May 20, of total 159,211 stocks of Samsung, 47,363 stocks, or a 29.75 percent, were short-sold. Of those sellers, 85 percent were foreign investors. The near 30 percent ratio is unseen in almost 2 years since 32.87 percent on July 22 in 2014. Compared to then, debit balance in its investors’ margin accounts also added 923.4 billion won, up 20 percent to 5.6 trillion won as of Thursday.

Short selling is the sale of a security that the seller does not own, but that is promised to be delivered. A seller sells a stock lent by a broker and receives proceeds upon transaction. The seller closes the short by buying back the same number of shares and return them to the broker. If the price of the stock drops, the seller makes a profit on the difference. The tactic is mostly used by investors when they project a drop in share price.

However, latest offshore investors’ move on Samsung stocks counters the norm as the electronic giant has not only recorded better-than-expected earnings in the first quarter but also likely to gain improved profit for the next one. According to Seoul-based market data provider FnGuide, market expects Samsung’s earnings to improve around 1 percent or more to 5.3 trillion won in net profit, 6.7 trillion won in operating profit during the second quarter – some brokerage firms estimate 7 trillion won. Its sales are estimated at 50.6 trillion won in April – June period.

Foreign stampede to short Samsung’s stocks seems likely to have been fueled by some home and overseas factors. Its flagship smartphone Galaxy S7 drove the first-quarter performance but the force would taper off into the latter half of the year. This made some hedge fund operators to go short on Samsung and take a long position on SK Hynix Inc., the nation’s second-biggest semiconductor cap. China’s A-shares inclusion in MSCI emerging equity benchmark slated late this month also played against Samsung as probable inflow of passive funds into the nation led many offshore investors to withdraw money from the company to bundle into China’s A-shares.

By Bae Mi-jung

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]