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How can an American invest in Samsung Group (005930.KS) if shares of the South Korean electronics giant don’t trade on a major U.S. exchange and the company doesn’t have an American Depositary Receipt (ADR)?
Sure, Samsung trades on the Korea Exchange (KRX) and its global depositary receipts are listed in Europe, but those avenues can be complicated or even verboten for American investors (such as the case with those GDRs). Fortunately, there are a few workarounds to the truly determined wannabe Samsung investor. (For related reading, see: Should You Care That Samsung Doesn’t Need U.S. Investors?)
Buying Shares on the KRX
American investors can buy Samsung shares through a local broker in South Korea or invest directly (after filing the appropriate paperwork). The latter requires an investor to obtain an investor registration certificate (IRC) from South Korea’s Financial Supervisory Service. After that, a stock trading account can be opened at a Korean securities firm, funds can be transferred and shares can be traded in real-time. Of course, there is much paperwork to submit, such as a standing proxy agreement, and investment ID application, registration of signature, criteria for determination of non-resident in Korea, and – of course – a copy of the investor’s passport.
Investing with a local broker, such as Merrill Lynch International Inc., only requires opening an account, depositing funds and then placing trade orders. Of course, investors will take it on the chin with fees, not to mention the added currency risk of having to change Korean won for U.S dollars and back. After all that, traders will have to hurdle minimum order sizes, will have to trade during local trading hours and can’t trade on margin.
Pink Sheets/Grey Market
Would-be investors can find shares of Samsung available on the Grey Market, which are traded over-the-counter, with the help of the National Quotation Bureau‘s Pink Sheets. Investors will still get dividend payments here, though they may not retain voting rights. There are several potential downsides, however, as volume (and therefore liquidity) and high bid-ask spreads mean that unloading shares quickly might not be easy. Also, transparency — such as reporting of daily trading — is light. It’s wise for anyone trading Samsung OTC to use limit orders — not market orders — to account for the bid/ask spread disparity. (For more, see: The Over-The-Counter Market: An Introduction To Pink Sheets.)
Investing In An ETF
This might be the best way to get exposure to Samsung, though an investor will have to be content with investing in a basket containing other companies, as well. At least Samsung is so large its weighting in any South Korea-focused ETF tends to be heavy. For example, Samsung’s weighting in the iShares MSCI South Korea ETF (EWY) and The Korea Fund Inc. (KF) stands at about 20% for each ETF. Samsung appears in other, internationally focused funds, as well. (For more, see: Following Buffett Into South Korea.)
The Bottom Line
Truly determined American investors who want to buy shares of Samsung have a few options, though they come with several hurdles, such as red tape, transaction fees, transparency and liquidity concerns and more. For the casual investor, an ETF focusing on South Korea, international conglomerates or electronics manufacturers might be the best, easiest avenue. (For more, see: Investing Beyond Your Borders.)