U.S. retail investors who have gone sour on Apple Inc after the drubbing the stock has been taking may want to think twice before trying to buy its main smart phone rival, Samsung Electronics Co Ltd, at least in American markets.
Apple's market value dropped by about $50 billion late on Wednesday as disappointing results, due to weak holiday sales of its iPhone, sent its shares plummeting 10 percent. Samsung's success in taking market share with its cheaper smart phones is seen as a major reason for Apple's problems, making the South Korean company an obvious alternative for investors.
Yet Samsung, with a market capitalization of $236 billion, isn't listed as an American Depositary Receipt (ADR) on major U.S. markets, though other foreign companies such as Toyota Motor Corp and Sony Corp are. Instead, an unofficial version of Samsung trades on the over-the-counter market, commonly referred to as the Pink Sheets, under the ticker.
Opting for these unsponsored shares, which trade on what's formally called the Grey Market, means you get nearly all the traditional benefits of owning the South Korean-listed version of Samsung shares, including any dividend payments, though they might not give investors voting rights.
But investors should be wary. Low trading volume and high bid/ask spreads might make it hard for an investor to sell a position quickly if something goes wrong. And it's just as hard to jump in when the news is good.
An average of only 195 unsponsored Samsung shares have traded over the past five days, according to Thomson Reuters data, compared with an average of 271,053 locally listed Samsung shares on the South Korean market during the same period. The lack of liquidity could add costs such as higher brokerage fees and outdated price quotes when an investor wants to buy or sell.
"You get no information during the day on how much trading there is, so when you put in an order to your broker you might get something quite different than what you were expecting," said Allan Nichols, an international telecom equity analyst at Morningstar who covers the company.
Samsung, which didn't respond to requests for comment, is due to report its fourth-quarter results on Jan. 25. Its shares have gained 24.2 percent in the last six months.
The company isn't alone in its decision to stay away from official ADRs.
As of Sept. 30, there were 1,344 unsponsored ADRs trading in the United States, according to money