Mirae Asset, Korea Investment & Securities engage in possible tit-for-tat over rating downgrades

A composite image shows the headquarters of Mirae Asset Securities, left, and Korea Investment & Securities. Yonhap

Korea’s two largest brokerage houses — Mirae Asset Securities and Korea Investment & Securities (KIS) — are engaged in an apparent tit-for-tat by downgrading ratings for each other’s stocks in their analyst reports early this week.

The move is fueling speculation over whether the companies may be using the reports as a tool to attract investors away from each other, especially at a time when the stock market is rallying under the new government’s investor-friendly policies.

On Wednesday, KIS lowered its investment outlook for Mirae Asset Securities from “buy” to “neutral” on the benchmark KOSPI in an analyst report on investment worthiness.

The revised assessment came after Mirae Asset Securities downgraded its own rating for KIS, also a KOSPI-listed company, from “buy” to “neutral” in its report, Monday.

According to market observers, a “neutral” rating is often regarded as being effectively equivalent to a “sell.”

“In that sense, a neutral-rated stock is perceived as having little merit as an investment,” an executive of an advocate group for retail investors said, asking not to be named.

KIS's report said Mirae Asset Securities made significant gains this year and therefore its potential “for further upside is limited.”

It pointed out that Mirae Asset’s price-to-book ratio (PBR), a metric to identify undervalued stocks, is 0.92. A PBR below 1 indicates a stock may be priced below fair value, but also suggests it can reap huge gains if the right regulatory policies are implemented.

Mirae Asset Securities said KIS “has prioritized sales growth but lacks commitment to investor returns.”

“We therefore believe that the company is unlikely to resolve issues of undervalued stock,” Mirae Asset Securities said.

The two companies dismissed speculation that they are using their analyst reports to gain an upper hand in sales.

Both parties said that the authors of their respective reports — Jeong Tae-joon of Mirae Asset Securities and Baek Doo-san for KIS — independently came up with the ratings and that no directions were given by the companies.

“It is common practice for securities firms to rate a competitor's investment worthiness,” a Mirae Asset Securities public relations official said. “There should be no misunderstanding that the companies are using an analyst report to blemish their rival’s reputation.”

An executive from a retail investors’ advocate group, however, said, “It is possible that companies quietly employ all potential means to make themselves look superior to their rivals.”