Targeting Short Selling: Are Global Investment Banks Intending to Make Profits with Negative Reports? | BusinessKorea

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Some local investors have doubts that foreign securities companies intentionally induce a drop in stock prices with negative reports to make profits through short stock selling.
Some local investors have doubts that foreign securities companies intentionally induce a drop in stock prices with negative reports to make profits through short stock selling.
Seoul, Korea
29 November 2017 - 9:30am
Yoon Yung Sil

As Samsung Electronics Co. shares fell more than 5 percent due to “Morgan Stanley shock,” there is a growing fear of foreign securities firms’ reports among investors. A conspiracy theory about the asymmetry of information is also spreading. Although foreign securities companies claim that they are constructing the fire wall between its research and sales divisions, some investors still have doubts that foreign securities companies intentionally induce a drop in stock prices with negative reports to make profits through short stock selling. 

Domestic securities firms refuted Morgan Stanley’s report that a boom in memory chips is likely to peak soon and said the fall in share prices gave an opportunity to buy Samsung Electronics shares. 

Samsung Electronics shares closed at 2,664,000 won (US$2,462.11) on November 28, up 1.22 percent, or 32,000 won (US$29.57) from the previous trading day. Its stocks got over the nosedive of 5.08 percent the day before and showed a recovery trend but they fell far short of 2.7 million won (US$2,495.38). Samsung Electronics is the not first company that has been adversely affected by foreign securities companies’ reports. Last month, the share price of KOSDAQ bellwether Celltrion dropped more than 8 percent after Morgan Stanley issued an analysis report on Celltrion, downgrading its target stock price to 80,000 won (US$73.94).

With stock prices repeatedly taking a nosedive due to reports issued by foreign securities companies, some investors, centered on individual investors, are raising a doubt and getting enraged. Morgan Stanley, which released a report that downgraded its investment view of Samsung Electronics to “neutral,” increased buying the stocks in a “short covering” dimension as the stock price became lower toward the closing on the 27th. Morgan Stanly was in hot water after it was found out that the securities firm is a holder of a large short-selling balance that is more than 0.5% of its listed shares at the time when it announced its report on Celltrion suggesting its investment view to “underweight” last month.   

Domestic securities companies issued a series of reports refuting Morgan Stanley’s report. Mirae Asset Daewoo Co. said, “The operating profit of Samsung Electronics’ memory chip division is expected to continuously grow to 10.9 trillion won (US$10.07 billion) in the fourth quarter this year and 11 trillion won (US$10.17 billion) in the first quarter next year. We still maintain our investment view to “buy” and the target stock price at 3.4 million won (US$3,142.33). eBEST Investment & Securities Co. also said, “The drop in Samsung Electronics shares on the 27th was somewhat excessive.” It said the company’s stocks are highly likely to rebound again in a short period of time. Lee Kyu-jin, a senior analyst at ebest Investment & Securities, said, “Samsung Electronics’ price earning ratio (PER) is 7.6 this year and 6.5 next year. It means that the company’s shares are still undervalued.” He said the shock caused by Morgan Stanley’s report would be a cause of the short-term drop.

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