Brokers still hesitant to say sell

Korean brokerage firms are still highly hesitant to recommend their investors sell, according to data compiled by the Korea Financial Investment Association (Kofia).

The investment industry association’s data showed on Wednesday that 20 out of 32 local brokerage firms published no stock recommendation reports last year that suggested investors sell. Their analyst reports only wrote about which stocks to buy or keep.

The 20 firms with no selling recommendations included large firms such as KDB Daewoo Securities, Samsung Securities and Shinhan Financial Investment.

Negative reviews of listed companies accounted for only around 1 percent of reports published by other large firms such as NH Investment & Securities, Mirae Asset Securities and Daishin Securities.

Hanwha Investment & Securities was one of few firms that contained selling recommendations, on 7.4 percent of total reports it published last year, followed by Hana Financial Investment at 3 percent and Korea Investment & Securities at 2.2 percent.

Of the 58 brokerage firms operating in Korea, 48 firms provide statistics about their analyst reports. Thirty-two are Korean firms and 16 are Seoul branches of foreign brokerage firms.

Unlike local firms, nearly 15 to 20 percent of reports written by foreign firms including Goldman Sachs, Morgan Stanley and Macquarie suggested selling. Merrill Lynch told its customers to sell in 30.1 percent of reports.

Kofia launched an electronic public announcement system last May to open up analyst reports by its member firms. The system is aimed at boosting the transparency and reliability of investment recommendations.

Industry insiders say Korean brokerages are often pressured to avoid writing negative investment recommendations on their reports because of their relationship with conglomerates.

“Brokerage firms evaluate listed companies on their reports, but much of their profit comes from the investment banking sector, where these listed conglomerates are huge clients and have a lot of power,” said an official at the financial investment supervision department of the Financial Supervisory Service (FSS).

“Local branches of foreign brokerages are free from this relationship, mainly writing investment recommendations for their overseas clients.”

Large listed companies tend not to work with brokerages that write negative recommendations or exclude them from investor relations events, the FSS official said.

The brokerage industry last year requested financial regulators make a policy in which listed companies hold investor relations events publicly at the Korea Exchange to prevent brokerages from being isolated because of their selling recommendations.

However, the FSS said it does not plan to develop such a policy, saying it is realistically difficult to force listed companies to change their existing relationship with brokerages.

BY KIM JI-YOON [kim.jiyoon@joongang.co.kr]