Geo-political conditions dim prospects for Samsung stock in near future

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Samsung Electronics’ estimate-beating earnings seem not to be enough to calm investors who remain wary over headwinds from rising inflation, rate hikes and geopolitical risks, analysts said on Tuesday.

Shares of Samsung, the world’s largest memory chip and smartphone maker, have tanked this year, even though the tech giant is likely to report its best first-quarter earnings in four years later this month, on the back of solid chip and mobile demand.

The South Korean tech giant estimated its operating profit at 14.1 trillion won ($11.5 billion) for the first three months of the year, up 50.3 per cent from a year ago, reports Yonhap news agency.

Despite the rosy forecast, Samsung shares closed at 67,300 won on Tuesday.

In Monday’s intraday session, Samsung shares dipped to 66,100 won, the sixth time this month that its shares renewed its 52-week low.

The tech giant’s shares have declined some 15 per cent since the start of this year, higher than the broader market’s 9.5 per cent retreat.

Foreign investors have been net-sellers, offloading 3.48 trillion won worth of Samsung shares year to date. They now own around 51 percent of Samsung shares, down from 56 per cent early last year.

On the contrary, retail investors have gone on bargain hunting, seeing opportunities in the high-growth, but beaten-down stock. They bought 3.16 trillion won worth of Samsung shares for the first 15 days of this month.

“Bellwether Samsung shares cannot escape from the sell-off by foreign investors who are fleeing to safe assets from risky ones,” Hyundai Motor Securities analyst Roh Geun-chang said.

The overall chip market faces negative sentiment from investors that the uptrend in the chip cycle might not continue due to the heightened risk of consumer spending decreasing.

Analysts forecast the chip growth to slow down in the coming months, as consumers, reeling from high inflation, started to cut back on their spending on non-essential items, such as consumer electronics and home devices.

“Slowdown in demand triggered by economic uncertainties, coupled with questions on when memory chip prices could rebound seem to weigh on Samsung shares,” KB Securities analyst Kim Dong-won said.

Plus, Russia’s war in Ukraine and China’s recent lockdowns in major cities to stem the spread of the coronavirus have added to the woes of already fragile global supply chains.

Given the murky outlook, analysts have recently revised down the price targets for Samsung.

Share prices are unlikely to advance to upward of 80,000 won, they said.

“It seems hard to dissipate uncertainties hanging over the war, inflation and China’s COVID-19 lockdowns all at once,” Lee Seung-woo from Eugene Investment & Securities said.

“But there are chances that the stock could rebound if any one of the situations show signs of improving.”

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