Growing Sense of Doubts over Foreign IB Reports

As a negative report on Samsung Electronics came out after Celltrion and the Korean stock market faltered, there is a growing sense of doubts over reports issued by foreign investment banks (IBs).

In regard to the drop in Samsung Electronics shares on November 27, a researcher at a domestic securities firm said, “A majority of domestic securities companies disagree with Morgan Stanley’s opinion. We don’t think it is proper to lower the price target on the stock.” South Korean securities firms suggest Samsung Electronics’ target stock prices between 3.1 million won (US$2,841.43) and 3.8 million won (US$3,483.04).

Previously, the stock price of Celltrion and SK Hynix also plunged in the short term due to reports issued by foreign IBs.

Morgan Stanley issued an analysis report on Celltrion on October 18, suggesting its target stock price at 80,000 won (US$73.33) and its investment view to “underweight.” Accordingly, the share price of Celltrion, which surpassed the 200,000 won (US$183.32) mark, dropped more than 9 percent on the next day. 

Morgan Stanley’s price target on the Celltrion stock was less than half the average price target presented by domestic securities companies. After the report was issued, foreign investors turned their positions from a net-purchasing to a net-selling, dragging down the stock prices. As the trading value of Celltrion’s short stock selling this month reached the highest since the flotation, the short stock selling forces showed a stronger selling spree.

Morgan Stanley is a holder of a large short-selling balance that is more than 0.5% of its listed shares. This is one of the reasons that domestic securities industry and market are critical of Morgan Stanley’s report.

The price of SK Hynix shares also slid after its negative report was published by a foreign securities firm. CLSA issued a report on October 17 that the price of memory chips is expected to decrease from the fourth quarter, downgrading its view of SK Hynix to “underweight” from “buy.” 

With the “CLSA shock,” the price of SK Hynix shares, which was traded at some 80,000 won (US$73.41), declined to 70,000 won (US$64.24). Foreign investors dragged down its price. However, the company’s stock prices currently recovered to some 80,000 won (US$73.41) thanks to its performance improvement in the third quarter. SK Hynix also has a high level of foreign investor ownership at 48 percent. The company also saw its share prices take a nosedive after European IBs – UBS and Credit Suisse – released the negative report on SK Hynix in February this year.