Henry Seggerman |
By Henry Seggerman
There are hundreds of stock markets around the world and tens of thousands of research analysts whose profession is to make recommendations to you the investor. All around the world, these analysts will recommend that you buy or hold or sell companies listed on the stock market.
But if the company is in the Samsung, Hyundai, LG, or SK chaebol, this does not apply. In Korea, no analyst from a local broker has published a sell recommendation for a company in the Samsung, Hyundai, LG, or SK business groups -- at least not in the last five years. All you get for those companies is buy or hold. This applies to every single affiliate of the top four chaebol, even their embarrassing nepotistic experiments hiding out in the KOSDAQ.
So, if you are a less experienced investor holding poorly performing top four chaebol stocks, you will follow local broker recommendations, hold this junk permanently, and lose all your money, because every analyst with local brokers you trust recommends hold on those corrupt, loss-making companies you own - even if he is watching the factory burn down, as he writes his report from behind a fire truck.
Yes, yes, there are the assorted euphemisms such as underperform, reduce, underweight, avoid, etc. My point is that you will never, ever, ever read the word sell in research from a Korean local broker analyst for a top four chaebol company. That's taboo in Korea, like buying vodka in Mecca.
The lame excuse given for this utterly nonsensical national policy is that if an analyst dares to publish a sell recommendation, company IR officials will shut the analyst off from company visits or receiving financial results. What, do these Korean companies cut off foreign analysts from firms like Credit Lyonnais, Citigroup, and Deutsche Bank, who have the guts to publish sell recommendations once in awhile? What, do North American, European, and Japanese blue-chip companies succeed in blocking all sell recommendations from all their local brokers?
IR officials will be displeased by negative views anywhere in the world. So what? Get used to it! If a movie star is in a lousy film and the critic hates it, the movie star will get upset. Just imagine if every critic in Korea never told moviegoers the truth about lousy movies. Nobody would buy newspapers anymore.
There are various time-worn reasons given for the ``Korea Discount'' ― why Korea trades at a PE of 11, lower than any other stock market in Asia. For example, Korea lets fraudster top four chaebol lords with 2 percent actual stock ownership run vast conglomerates from their jail cells. But there is more than one reason for the Korea Discount. The utter lack of ``truth in advertising'' in censoring all local broker sell recommendations on top four companies is obviously another. Investors don't trust a market when all local broker research across the board is slanted towards buy and hold recommendations only. Nobody likes being lied to.
It's time for a cojones transplant for local broker analysts in Korea. I announce a contest. I will give ten million won in non-discounted commissions to the first Korean local broker that publishes a sell recommendation for any top four chaebol company, and I will also give the broker a glowing report in this column.
My clients will certainly profit from this contest. If ``truth in advertising'' comes to local research, the Korean market can re-rate and trade at Asia's average PE of 16, instead of 11. That's an easy 50% upside for my clients. A Korean local broker company sell recommendation will then become the biggest buy recommendation on the Korean stock market yet.
Henry Seggerman is the portfolio manager of Korea International Investment Holdings.
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