[Beginner's Guide to Stock Market] Stock Prices Fall but Sell Reports Are '0'... The Impact of Reports on Stock Prices

[Asia Economy Reporter Kwon Jae-hee] Amid the KOSPI index dropping about 30% since the beginning of this year, it has been revealed that only 4 reports issued by domestic securities firms in the first half of the year contained a 'sell' recommendation. As a result, the credibility of reports published by domestic securities firms is also declining. What kind of impact do stock reports have on stock prices that investment opinions have to be so conservative?

KOSPI fell 20% in the first half of the year, but no 'sell' reports

According to data submitted by the Financial Supervisory Service to the National Assembly's Political Affairs Committee, 32 domestic securities firms issued reports in the first half of this year. Among them, 28 firms did not issue a single 'sell' report over six months. Only four firms?DB Financial Investment, Daol Investment & Securities, Mirae Asset Securities, and SangSangin Securities?issued 'sell' reports, and even then, only one report each. Among all reports (4,345) from domestic securities firms, 'sell' reports (4) accounted for just 0.09%. 'Buy' reports (4,004) made up 92.15%, and 'neutral' (337) accounted for 7.76%.

Foreign securities reports gaining influence amid this gap... Naver stock tumbles on 'sell' opinions

On the 4th, Citi Global Markets Securities downgraded Naver's investment opinion from 'buy' to 'sell' in two steps. Unlike domestic securities firms, foreign securities firms often handle downgrades, but a two-step downgrade is rare and drew attention. Following Citi Securities, JP Morgan also lowered Naver's target price from 270,000 KRW to 220,000 KRW. Consequently, Naver's stock price closed at 176,500 KRW, down 8.79% in a single day, as large-scale sell orders from foreign investors poured out through foreign securities firms such as Citi Group, Morgan Stanley, and JP Morgan.

This contrasts sharply with domestic securities firms' Naver stock reports, which remain overwhelmingly 'buy'.

Reasons why domestic securities reports lack 'sell' opinions

Even looking at Naver's case, domestic securities firms' investment opinions often seem detached from reality. Is it because analysts are overly optimistic? The relationship between securities firms and companies plays a role here. An industry insider said, "Securities firms are not independent financial institutions but private companies that need to make profits," adding, "Due to the nature of securities firms performing tasks such as mergers and acquisitions (M&A) and initial public offerings (IPO), the companies covered in reports are potential clients." In other words, giving negative opinions could mean losing future clients.

As a result, among investors, there is even talk that 'neutral' or 'hold' opinions should be regarded as de facto sell recommendations.

Why should you still read securities firm reports?

Analysts discuss various factors that can affect stock prices through their reports, including companies, industries, markets, and the economy. For individual investors with limited information, these reports are valuable resources. It is not easy to visit companies or access industry insights beyond what is available in articles, so there are limitations. On the other hand, reports written by analysts provide in-depth information and insights about companies and industries.

However, it is recommended to read them critically. Analysts have easier access to information than individual investors and possess expertise in their fields, allowing them to provide deeper information, but predicting the future is beyond their capability. Ultimately, investment decisions must be made independently. After all, both profits and losses are the responsibility of the investor.

For reference, most securities firms provide analysts' reports free of charge. Some firms offer paid reports, but most can be accessed for free on the securities firms' websites.

Editor's Note[Beginner Investor's Guide] is a smart investment guide for 'Joorini' (stock + beginner). We will kindly and easily explain stock stories unfamiliar to beginner investors.