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Global IB research papers see diminishing influence
By Anna J. Park
Global investment banks have been publishing a flurry of "sell" reports ― or "underweight" or "underperform" opinions ― on Korean companies, as they view the firms' valuations have gone up above their substantial values recently amid the KOSPI's bullish performance.
Goldman Sachs gave an underweight opinion on Hanwha Solutions earlier this month, setting its target price at 40,000 won ($35), 10 percent lower than its current price as of Thursday's close. The rationale behind the sell position on the Hanwha affiliate is based on growing uncertainty due to low entry barriers to the solar energy business, which the bank says means its profitability should be estimated in a long-term period. Considering competitors' increasing equipment investments, Hanwha Solutions' stocks need to be discounted, it insisted.
A recent research paper by Hong Kong-based CLSA suggested "sell" on E-mart stocks following a negative assessment of Shinsegae Group's acquisition of eBay Korea. CLSA's target on E-mart is 139,000 won, a drop of more than 12 percent compared to the stock's 155,000 won closing price as of Thursday.
Leading battery companies have also been targeted by major investment banks to receive a lukewarm reaction. Morgan Stanley voiced an "underweight" position on Samsung SDI, changing from its previous status of "equal-weight" of the Samsung affiliate on the basis that battery manufacturers' profitability is expected to worsen amid heated competition. Despite the sell opinion, Samsung SDI's stock price rose by 20 percent in just a month, up to 732,000 won as of Thursday from 622,000 won early last month.
Credit Suisse wasn't favorable on LG Chem last month, when it gave an "underperform" view on the country's top chemical company. Its research paper asserted LG Chem's stock price should be discounted, given that its 100 percent stake in spun-off affiliate LG Energy Solution (LGES) would be lowered to 70 percent with its public offering later this year. LG Chem's stock price, however, increased from 814,000 won a month ago to 859,000 won on Thursday's closing.
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While global investment bank research teams are continuing to release sell reports on major Korean exporters, partly because of higher valuations amid the recent bullish run of the Korean stock market, the influence of these papers on stock prices is likely to be short-lived.
As seen in the strong performance recently of stock prices of Samsung SDI and LG Chem, the underweight reports' impact on the market is limited to the short term, followed by more bullish moves that offset the bearish moves stemming from the reports. Some other stock prices even show independent moves, regardless of 'underperform' reports.
Plus, this diminution of the influence of leading overseas research papers is also attributed to increased presence of retail investors, who have better access to these research papers when it comes to stock trading.
"We are witnessing more and more strong performances led by retail investors, who show strong buying moves according to their own preference and trading trend issues," a local market watcher said. "In the past, some companies' stock prices nosedived by 20 percent to 30 percent a day following foreign investment banks' sell reports. However, the impact is limited to a much shorter period, and we've seen that some stock prices even go higher."
