By Yoon Ja-young
Staff Reporter
Analysts' reports are supposed to help stock investors decide whether to buy or sell stocks, however, those in Seoul never say it's time to sell.
Complaints of untrustworthy analyst reports are increasing, advising investors to buy stocks even during the market collapse in October.
FnGuide, an online financial market information provider, analyzed 1,897 reports issued in October, when the Seoul bourse shed 27.2 percent, with the main index dipping from 1,453.40 to 892.16. None of the reports advised investors to sell stocks.
The reports that advised buying shares totaled 1,563, with another 32 strongly recommending buying. Neutral reports numbered 301.
The gap between analyst target prices and stock market prices was wider than ever. According to FnGuide, the analyst target price for KISCO Holdings, for example, was as high as 94,667 won in October. The stock, however, closed at 32,400 Friday, trading at about one third of the estimate. Some say it would take years for the stock to reach the target price suggested by analysts.
Analysts are supposed to determine the target price by taking many factors into account, including the economy, performance, asset value, profits, cash flow and governance structure of the company. The wide gap may reflect that stocks are undervalued but the gap was still too wide.
Investors are increasingly finding the rosy reports untrustworthy; even analysts' peers don't trust them. According to a survey by the Korea Securities Dealers Association, three out of 10 people in the securities business said they don't trust analyst reports.
In contrast, foreign securities companies rattled the market last month with some negative reports. When JPMorgan lowered the target price of Mirae Asset Securities to 65,000 won from 171,000 won, the share price fell by its daily lower limit. Merrill Lynch cut the target price of Daelim to 38,000 won from 120,000 won, and UBS issued a ``sell'' recommendation on Hyundai Heavy Industries, on estimations that ship orders will decrease until 2010.
Local analysts, however, don't issue ``sell'' recommendations, a systematic problem in the local industry. ``I don't trust analyst reports, but I understand their situation. If somebody issues a ``sell'' report on a firm, he or she will be penalized,'' said a securities company employee in charge of investment banking.
Moreover, analyst reports here are used as sales tools for institutional investors, rather than as guidelines. Fund managers, who determine the brokerage income of securities companies, don't like pessimistic reports. It is difficult for analysts to issue negative reports on stocks massively held by the fund manager.
Analysts at foreign securities companies, meanwhile, are enjoying independence, issuing pessimistic reports freely if they see more negative factors.
The local atmosphere casts suspicion whenever a negative report is issued. Following a series of negative reports by foreign securities companies that shook the market, some came up with a conspiracy theory, according to which the negative reports were aimed at serving short sellers who make more money as stock prices fall.