Morgan Stanley’s Chip Call Sparks $1.45 Billion Foreign Selloff in Samsung Electronics

Foreign Ownership Falls to Lowest Since Financial Crisis

Brokers Say the Selloff Was Overdone

Samsung Electronics became the world’s most profitable company by operating income in the second quarter, overtaking Nvidia, but the stock market gave the results a chilly reception. Samsung shares slumped, dragging the Kospi back into the 7,000 range. The decline was driven by profit-taking after a recent rally and renewed debate over whether the semiconductor cycle has passed its peak.

The Kospi fell 4.91% to close at 7,656.31 on July 7. The benchmark had tumbled to 7,648.09 on July 2 and quickly climbed back above 8,000, only to slip back into the 7,000 range three trading days later. The Kosdaq dropped 1.87% to 831.23, its lowest close this year.

Before the market opened, Samsung said in a preliminary earnings release that second-quarter operating profit surged 1,810% to 89.4 trillion won ($64.8 billion). Investors responded by selling. Even though Samsung’s operating profit exceeded Nvidia’s, expectations for semiconductor companies had risen so far that the result fell short of being treated as an earnings surprise. Samsung sank 6.92% to 296,000 won.

Han Ji-young, an analyst at Kiwoom Securities, said street consensus may have been in the 90 trillion-won range. For now, investors appear to be treating the earnings release as a sell-on-strength event.

Renewed concerns over a peak in the semiconductor cycle, amplified by global investment banks, also weighed on sentiment. In a report sent to clients on July 6, Morgan Stanley wrote that the narrow rally led by chip stocks was ending and that market leadership was beginning to broaden. The bank said it preferred cutting semiconductor exposure in the short term and increasing positions in hyperscalers.

Morgan Stanley, which drew attention in 2021 and 2024 for warning about peaks in semiconductor stocks and was blamed for sharp declines in Samsung Electronics and SK Hynix, prompted a heavy foreign selloff with its latest report. Foreign investors were net sellers of 1.8206 trillion won ($1.32 billion) of Samsung Electronics shares on July 7. Including 150.6 billion won ($109 million) of net sales in Samsung preferred shares, total selling came to nearly 2 trillion won ($1.45 billion). Foreign ownership of Samsung fell into the 46% range, the lowest since the 2009 global financial crisis and the weakest level in 17 years.

Samsung’s slide spilled over into related stocks. SK Hynix, the other member of South Korea’s chip duopoly, dropped 6.06% to 2.201 million won. Other large-cap shares also fell, including SK Square, down 9.30%, Samsung Electro-Mechanics, down 9.85%, and Hyundai Motor, down 4.48%.

Brokerages said the selloff looked excessive. Kim Dae-jun, an analyst at Korea Investment & Securities, said volatility had increased after the launch of leveraged exchange-traded funds, magnifying the decline. On a price-to-earnings basis, the Kospi has entered a zone of extreme undervaluation, he added.

Lee Kyung-min, an analyst at Daishin Securities, said the sharp drop in domestic equities had revived concerns about slowing fundamentals. Still, stronger earnings and upward revisions to gross domestic product growth show fundamentals are improving. The market has more upside than downside risk, he said.

Kang Jin-gyu, Hankyung reporter, josep@hankyung.com

Jeon Beom-jin, Hankyung reporter, forward@hankyung.com