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By Jhoo Dong-chan
Global investment banks (IBs), such as Morgan Stanley and Goldman Sachs, have come under fire here for producing a series of downbeat reports on major Korean companies, including semiconductors and biotech firms.
Their repots have led to a steep fall in stock prices weighing on Korea's financial markets.
Some analysts have raised questions about the validity of the reports saying that their forecasts lack a rationale for the pessimism and failed to reflect industrial changes underway.
Their reports have come into the spotlight as Seoul stocks related to the nation's semiconductor manufacturers have plunged since early August over their negative outlook reports.
Not only semiconductor manufacturers but also pharmaceutical and biotech firms were also targeted by such an outlook.
Foreign IBs' credibility is being questioned with proper reason. Their outlooks a year ago turned out to be wrong after shaking those stocks.
They came up with a series of skeptical forecasts last year, but failed to predict a peak after the chipmakers and bio firms outperformed.
On Aug. 6, U.S.-based IB giant Morgan Stanley lowered its outlook on shares of chipmaker SK hynix to the "underweight" rating, down by two levels from its previous rating. Three days later, it downgraded its outlook about the global semiconductor industry to "cautious" from "in-line," highlighting rising inventory levels.
The "cautious" grade is Morgan Stanley's lowest rating meaning its analysts believe the sector will underperform the market over the next 12 to 18 months.
The IB giant's gloomy forecast spilled over into the global industry. Shares of hynix immediately fell 4.7 percent to 83,560 won ($74.05) when Morgan Stanley released the outlook. They also dived another 3.7 percent after it lowered the global industry outlook three days later.
Shares of the world's largest chipmaker Samsung Electronics also suffered a nearly 4 percent drop on the day, approaching a record low for the last 52 weeks.
Samsung Electronics and SK hynix are the nation's top two domestic companies in terms of market capitalization.
Foreign IBs also have a powerful influence on pharmaceutical and biotech stocks.
Celltrion and other biotech stocks nosedived Aug. 13 after New York-based IB Goldman Sachs reported negatively on the bio-similar producers.
Shares of Celltrion declined 4.23 percent to 260,500 won ($215) on the benchmark KOSPI. Hanmi Pharmaceutical closed at 423,000 won, down 34,000 won, or 7.44 percent, from the previous session.
Samsung Biologics and ShillaJen also closed at 446,000 won and 55,200 won, respectively, each down 3.88 percent and 8.46 percent from the previous trading day.
The nosedive of major biotech stocks led to a 3.6 percent decline in the tech-heavy Kosdaq that day.
The plunge was attributed to Goldman Sachs' lowering of Celltrion's target price to 147,000 won, which is almost half its current price, amid heightened uncertainties including the drop in the Turkish lira against the dollar.
"In Europe, Celltrion's Remsima has a 54 percent and Truxima a 27 percent market share, respectively, but this will not happen in the US. In the US, bio-similars are less attractive, have less institutional support, and partner companies are not active in marketing," Goldman Sachs researcher Kim Sang-soo said in a press release.
"Celltrion's products aren't the first bio-similars in the pharmaceutical industry. The global bio-similars market will grow from $1 billion in 2017 to $14 billion in 2025, but price competition will be intensified as Chinese and Indian pharmaceutical companies join the competition, pushing down the bio-similars price in the European market."
Analysts showed reservations about the IBs' negative stance, but said their outlooks were a bit too drastic.
"The outlooks are little too hyped," said former Daishin Securities researcher Lee Sang-hoon.
"I understand they do have reasonable grounds, claiming the supercycle of semiconductor shares has come to an end, however, I don't think the sector will underperform the market all the way over the next 12 to 18 months."
He added no one expected the uptrend of the nation's biotech shares could last this long.
"Foreign IBs have come up with a series of skeptical forecasts before biotech firms reached this far. They aren't always right."
Meritz Securities analyst Kim Sun-woo also said the semiconductor sector will soon reach its peak and then start a soft landing from the fourth quarter.
"The DRAM sector is undergoing a correction period in demand. Momentum is weak at the moment," he said.
"The sector has enjoyed the supercycle quite a while, and will reach its peak in the third quarter. It will then slow but maintain a growth trend in the long run."
A Samsung Electronics official said there was still room for further momentum because demand still outweighs supply.
"Their outlooks are a bit drastic," the official told local business paper Chosun Biz.
"Not only Samsung but also SK expanded their production capacity to meet mounting demand for chips. Especially, demand in the server sector is growing rapidly. Such an outlook that the semiconductor industry will soon reach its peak is groundless."
