The share price of Samsung Electronics hit a record high in August, just a day before the company released its Galaxy Note 7. The announcement that followed about halting the production and distribution of the same phone led to an 8% drop in the value of its shares, the largest drop since 2008, cutting $17 billion off the market value.
"Even though the hype is big on Samsung Electronics because of the Note 7 issue, if we look in detail, the stock is not continuously going down, as one would guess, but its volatility is going up," said David Merget-Merger, director derivatives trading in Korea Investment & Securities. "The stock is only down 0.50% on the month and still up 26.2% against the same time last year."
But, while foreign and domestic investors alike had been offloading Samsung shares after the company announced its indefinite production suspension, the National Pension Service went against the tide, purchasing the company's shares while the price is low, according to local media reports. With most retail structured products linked to Samsung Electronics' equity-linked bonds sold as retirement pensions in South Korea, the pension fund has been increasing its holdings in line with a requirement for 20% of its overall share portfolio to be in domestic stocks.
For structured products, the suspension of the phone has been met with a drastic decrease in issuance: only 42 products linked to stock including Samsung Electronics were issued in September, a fall from 48 in August, and a far cry from the 62 and 75 issued in July and June, respectively. Furthermore, the number of products linked solely to Samsung Electronics shares have almost halved in September, with 23 new products, against 44 in June. "If investors fear a potential trend down in SEC in the short to mid-term, they could switch to other indices or even index structures," said Merget-Merger.
Samsung Electronics makes up around 18% of the Kospi 200, South Korea's benchmark and the underlying for 50% of equity-linked products in September. "The Kospi 200 has been trading around the 250 level for years now and I expect it to stay range bound," said Merget-Merger. "These products are usually paired with other foreign indices, on which customer could have bigger worries." The Korean benchmark index is frequently used in combination with foreign indices, such as the Eurostoxx 50, S&P 500, Hang Seng indices and Hang Seng China Enterprises indices.
"Samsung Electronics' could bring a little more volatility to the Kospi, hence more attractive yields to customers," said Merget-Merger. With Samsung Electrics' revenue representing almost one-fifth of gross domestic product, it is not surprising that right after Samsung Electronics told its users to turn off their Note 7 smartphones, volatility on the Kospi 200 index climbed more than 30 percent.
In 2016, 597 Samsung Electronics-linked structured products have been added to the SRP South Korea database.
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