The influence of global investment banks (IBs) on Korean stocks has never been stronger. On September 15, Morgan Stanley slashed SK Hynix's target price from 260,000 KRW to 120,000 KRW, downgrading its rating from "Buy" to "Sell." When trading resumed after the Chuseok holiday on September 19, SK Hynix shares plummeted 6.14%. Similarly, Macquarie recently cut Samsung Electronics' target price from 125,000 KRW to 64,000 KRW, downgrading it from "Buy" to "Neutral." As a result, Samsung’s stock fell below 60,000 KRW, marking a new 52-week low.
Why Are Korea’s Leading Stocks Collapsing?
There are two key reasons for this:
1. Korean Analysts’ Reluctance to Issue ‘Sell’ Ratings
Domestic analysts almost never publish ‘Sell’ reports, making foreign IB research seem more credible to investors. With Korean securities firms consistently issuing "Buy" ratings, investors turn to foreign reports for more objective insights—which has triggered massive sell-offs in stocks like Samsung Electronics and SK Hynix.
The issue stems from the conflict of interest between brokerage firms and the companies they cover. Since securities firms earn fees from these companies, issuing negative reports risks upsetting corporate clients. As a result, even when companies underperform, analysts continue to recommend buying.
One notable example occurred in April 2023, when an analyst issued the first "Sell" rating on EcoPro. The Financial Supervisory Service (FSS) launched an investigation, suspecting collusion with short-sellers. While the FSS later justified its actions as a response to investor complaints, the incident demonstrated the risks analysts face when issuing negative ratings.
2. Weak Market Structure & Investor Sentiment
The second issue is the fragility of the Korean stock market itself. The impact of foreign reports is so severe because domestic investors lack the buying power to counteract foreign sell-offs.
Even when global semiconductor companies received similar downgrades, Korean firms suffered disproportionately larger stock declines, exposing the weakness of Korea’s capital markets. This issue is further compounded by:
Heavy reliance on foreign investment, making local stocks vulnerable to external shocks.
Lack of domestic institutional support, meaning retail investors often bear the brunt of market volatility.
Conspiracy Theories & Market Manipulation Concerns
Whenever major stocks collapse, conspiracy theories about market manipulation arise. Some suspect coordination between short-sellers and foreign IBs, particularly after Morgan Stanley’s Seoul branch sold 1.01 million SK Hynix shares just before issuing its bearish report on October 13.
However, there’s no clear evidence of illegal activity. Foreign ownership of SK Hynix still remains at 54%, and accusations of front-running would require proof that these banks intentionally manipulated the market—an unlikely scenario given the regulatory risks.
The Need for Reform: Strengthening Korea’s Capital Markets
Instead of chasing conspiracy theories, Korea must address the root causes of the problem:
Enhancing Analyst Independence: Analysts must be able to issue objective research without corporate or regulatory pressure.
Strengthening Domestic Institutional Support: Korea must build a more resilient market structure to absorb external shocks.
Ending ‘Buy-Only’ Research Culture: Securities firms must prioritize credibility over client relationships to rebuild investor trust.
[Compliance Note]
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Core16 may hold positions in the stocks mentioned in this post and may buy or sell them at any time.
