reason for MU selloff
Samsung’s Tumble Sounds a Warning for Tech Stocks
The fall in Samsung shares Monday followed a mild analyst report—a sign of the market’s current high state of nervousness
By Jacky Wong
Nov. 27, 2017 4:59 a.m. ET
0 COMMENTS
Investors in Asian technology stocks have been so bullish that it doesn’t take much to start a panic selloff.
Shareholders in Samsung Electronics had a taste of that Monday. The largest stock in the Korean market fell 5%—the most in more than a year—apparently triggered by Morgan Stanley downgrading the stock one notch to “Equal-weight.” That was enough to sink Korea’s benchmark Kospi index by 1.4% too. The bank is, understandably, questioning whether the memory-chip-market boom that has fueled a doubling in Samsung’s shares since early 2016 has now peaked. Prices for NAND, a memory chip used for storage in which Samsung is the global market leader, have already started falling, it said.
Despite its fretting, Morgan Stanley’s report doesn’t sound that ominous. The bank still expects Samsung’s earnings to grow 23% next year, higher than the median forecast for them to rise by 20.3%, according to S&P Global Market Intelligence. Its broader point is that there could be fewer upside surprises in store for Samsung to spark further share-price strength.
The knee-jerk reaction to such a mild report is a telling sign of the sensitivity around markets and tech stocks in particular right now. The mere suggestion there is a risk its earnings may not keep pace with overheated expectations has proved enough to knock a highflying tech stock off its perch.
Samsung’s stock may not be the last to suffer. Analysts have been raising their outlooks for Asian tech firms’ earnings as their actual results consistently beat earlier forecasts. Samsung, for example, has delivered better-than-expected operating profit in every quarter since 2016, except in the third quarter last year. Accordingly, earnings estimates for the company this year and next have doubled from 18 months ago, according to S&P Global Market Intelligence.
Similar optimism abounds in other tech stocks, like China’s Tencent and Alibaba, which together with Samsung, are the three biggest stocks in the MSCI Emerging Markets index. According to FactSet, more than 90% of analysts give these two stocks a buy rating, with no sell ratings at all. Shares of both Alibaba and Tencent—with a combined market value of around $1 trillion—have more than doubled this year as they keep making analysts play catch-up in their forecasts. Analysts now expect their earnings to double by 2020.
Easy money chasing better returns have pushed up valuations in these Asian tech firms. Samsung’s Monday plunge is just a dress rehearsal of what could happen when the unrelenting tide of optimism turns.
Write to Jacky Wong at JACKY.WONG@wsj.com
