Morgan Stanley Triggers Short-selling of Samsung Electronics, SK Hynix Stocks Again

Short selling of Samsung Electronics and SK Hynix shares skyrocketed again following Morgan Stanley’s release of a negative report. Short selling of the two companies, which rank first and second in terms of market capitalization in South Korea, has shown a tendency to increase around the release of foreign IB’s negative reports.

According to the Korea Exchange (KRX) and IB industry sources on Sept. 9, Samsung Electronics and SK Hynix took first and second places in the short sale list on the 6th.

The volume of Samsung Electronics’ short sales stood at 1,084,430 shares, up 17.4 percent from 895,228 shares a day earlier. The value of the stocks shorted reached 49.8 billion won (US$44.31 million). The volume of SK Hynix’s short sales also gained 39.3 percent to 743,842 shares from 451,544 shares a day ago. Its trading value recorded 58.1 billion won (US$51.69 million).

After the South Korean stock market closed on Sept. 9, foreign news reports said Morgan Stanley published a report saying, “Demand for major semiconductor chips, including DRAMs, has been recently decreasing.” Market experts believed that foreign investors, who read the Morgan Stanley’s report first, proactively short sold the stocks on the domestic bourse. Market watchers have continuously pointed out that foreign investor are taking advantage of a time gap between the United States and South Korea.

In the aftermath of the Morgan Stanley’s negative report, the prices of Samsung Electronics and SK Hynix shares fell 2.6 percent and 3.68 percent, respectively, on the 7th.

This is not the first time Samsung Electronics and SK Hynix have seen the short selling volume increase around the issuance of negative reports by foreign IBs. CNBC reported that Morgan Stanley downgraded the investment opinion for the global semiconductor industry to “warning” on Aug. 9 (local time). After that, the volume of Samsung Electronics’ short stock sales on the main KOSPI bourse jumped up from 110,000 shares on the 8th to 390,000 shares on the 9th, 1.14 million shares on the 10th and 1.55 million shares on the 13th. That of SK Hynix’s also increased from 150,000 shares on the 8th to 610,000 shares on the 9th and 890,000 shares on the 10th.
 

The surge in short sales was accompanied by a drop in share prices. Considering the fact that foreign IBs’ reports are disclosed to their customers, that is, foreign institutional investors, first, domestic investors are at a disadvantage in terms of access to information, according to market experts.

Critics note that foreign IBs frequently recommend investors to “sell” South Korean stocks, while domestic reports advise investors  to “buy” stocks more frequently. Hwang Se-woon, a senior researcher at the Korea Capital Market Institute, said, “It is hard to find a 'sell' opinion in domestic reports. As a result, 'sell' opinions from global IBs tend to have far-reaching influence on the market.”