Korean Stock Market Exposed too Much Fragile to Foreign Investment Bank Reports

The South Korean stock market is faltering due to a research report issued by a foreign investment bank (IB). Accordingly, experts say the domestic stock market has a “fragile mentality.”

On November 27, Samsung Electronics Co. shares fell more than 5 percent for the first time this year. The company’s shares closed at 2,632,000 won (US$2,415.79), down 5.08 percent, or 141,000 won (US$129.42), from the previous trading day.

Market experts say a Morgan Stanley report, which lowered Samsung Electronics’ target stock prices, is the main reason of the drop in Samsung shares. The report downgraded its view of Samsung Electronics to “equal weight” from “overweight” and lowered its price target on the stock from 2.9 million won (US$2,661.88) to 2.8 million won (US$2,569.99). As Samsung Electronics, which accounts for a considerable proportion of the main Korea Composite Stock Price Index (KOSPI), turned bearish, the KOSPI also showed a weak tendency. The KOSPI closed at 2,507.81, down 36.52 points, or 1.44 percent, from the previous trading day.

Samsung Electronics’ market cap took up 20.88 percent of the total KOSPI as of the 27th. It is no exaggeration to say that Samsung Electronics shares control the movement in the KOSPI.

The fall in Samsung Electronics stock prices also lowered the share price of affiliates of Samsung Group, which rank among the top in terms of market cap, dragging down the KOSPI further. On the same day, the share price of Samsung Life Insurance and Samsung C&T dropped 3.7 percent and 2.89 percent, respectively. Samsung BioLogics stocks also fell 1.45 percent.

Market experts say that Morgan Stanley’s report has a far-reaching power as it is a global IB with a plenty of customers. A researcher at a domestic securities firm said, “Foreign IBs are very influential because they bank with foreign investment management companies and individuals.”

In fact, foreigners hold a 53.54 percent stake of Samsung Electronics shares as of the 24th. Foreign securities companies, such as Morgan Stanley and Goldman Sachs, were on the top in terms of sales of Samsung Electronics stocks.