Why are foreigners buying Samsung, SK hynix shares despite Korea-Japan row?

Samsung Electronics and SK Hynix are experiencing difficulties since Japan is restricting exports of chip- and display-making materials, but foreign investors are rushing to buy shares of the two chipmakers, according to the Korea Exchange Sunday.

The stock market operator said foreigners bought 633.5 billion won ($537.3 million) worth of Samsung Electronics shares over the past two weeks since the Japanese government announced July 1 its restrictions on exports to Korea of resource-materials for producing chips.

They also bought 264.5 billion won worth of SK hynix shares over the same period.

Thanks to their rush, the share price of Samsung Electronics closed at 46,300 won Friday, up 2 percent from its July 1 close. The price of SK Hynix shares also surged over 8 percent to reach 74,700 won.

Their rally is in stark contrast to the Seoul bourse's downward trend. Over the past two weeks, the benchmark KOSPI has dipped 2.1 percent to 2,086.66.

Analysts said the two chipmakers' decision to cut chip production was one of reasons behind the rally in their share price.

"They just have too much stock. This was one of the obstacles for the industry," Nomura Securities Research Center head Chung Changwon said during media conference, Friday.

"Production cuts could help ease the situation. Chips are a core material in the digital age. It is like oil to entire industries. The firms' market share in the global DRAM market accounts for about 75 percent. It will be catastrophic if they completely halt their production. Japan is unlikely to completely ban exports of these materials."

According to sources, Samsung Electronics, SK hynix and Micron have cut up to 10 percent of their DRAM production. They will do the same with the NAND memory production as well.

"If they continue curtailing 10 percent of their production for a couple of months, their share prices will definitely jump to a certain degree," said Sangsangin Securities Research Center chief Kim Jangyeol.

DRAM and NAND market researcher DRAMeXchange said the spot market price of an 8-gigabyte DRAM is $3.261 per unit as of July 12, up 5.19 percent from the previous session.

The DRAM prices were also up 1.2 percent and 1.9 percent on July 10 and 11, respectively.

"If the current uncertainties continue in the long run, it won't be good for the firm," said a Samsung Electronics worker. "The government should step up to settle the issue."

According to Daishin Securities, the target share price of Samsung Electronics is set at 54,000 won.