Korea Exchange looks into Morgan Stanley's sale of SK hynix shares, possible link with 'Winter Looms' report

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Korea Exchange looks into Morgan Stanley's sale of SK hynix shares, possible link with 'Winter Looms' report

Published: 20 Sep. 2024, 16:36 Updated: 20 Sep. 2024, 19:19

PARK EUN-JEE
park.eunjee@joongang.co.kr

A screen at the Korea Exchange's office in Yeouido, western Seoul, shows SK hynix shares drop by 6.14 percent on Sept. 19. [NEWS1]

The Korea Exchange will look into the trading accounts of Morgan Stanley Korea over an allegation that the investment bank sold a large amount of its SK hynix shares before publishing a negative report on the company's outlook.

"We are trying to verify the specific subject of the contract. It remains unclear whether the equity sale contains illegalities," said a spokesperson at Korea Exchange on Friday. "If we find any issue, we will transfer the case to the Financial Supervisory Service."

Samsung, SK hynix shares fall after Morgan Stanley warns of semiconductor down cycle

Morgan Stanley downgraded its target price for SK hynix from 260,000 won ($195.2) to 120,000 won in a report titled "Winter Looms," which was released on Sept. 15. Two days earlier on Sept. 13, a total of 788,678 SK hynix shares were net sold by the Korean branch of the investment giant. Following the report's release, SK hynix shares plummeted 6.14 percent on Sept. 19.

The Korea Exchange stressed that its examination was standard procedure triggered by market rumors, not the result of confirmed evidence of wrongdoing.

Market participants have questioned whether Morgan Stanley employees or clients had advanced knowledge of the negative report, allowing them to sell their shares before the public.

However, proving insider trading will require evidence that individuals involved in the sell order had access to non-public information.

The CEOs of Nvidia, Jensen Huang, left, and Salesforce, Marc Benioff, discuss the building future with AI agents on Sept. 17 at the Yerba Buena Theater session during the Dreamforce conference in San Francisco, California, U.S. [EPA/YONHAP]

This marked the second time in three years that Morgan Stanley has forecast a "winter" for the semiconductor industry, sparking a debate about the health of Korea's export-driven semiconductor sector.

The US-based financial services company cited weak demand for general dynamic random-access memory (DRAM) and an oversupply of AI-specific high bandwidth memory (HBM) as the main reasons for the gloomy outlook for SK hynix and other Korea chipmakers like Samsung Electronics, and downgraded its investment opinion on the Korean tech sector from "neutral" to "cautious."

Such pessimism stems also from the growing warnings of an artificial intelligence (AI) bubble and uncertainties regarding HBM used in AI work.

However, executives and officials in the semiconductor industry disagree. They argue that unlike wholesale industrial products like DRAM, HBM chips are manufactured only through customized orders, making them less susceptible to oversupply and unsold inventory.

At the Goldman Sachs Communacopia + Technology Conference last week, Nvidia CEO Jensen Huang dismissed the pessimistic outlook on HBM. He emphasized the strong demand for the firm's components, technology, infrastructure and software, highlighting the rapid adoption of HBM. In May, SK hynix CEO Kwak Noh-Jung also confirmed that the company had sold out its 2025 production of HBM in addition to this year’s.

The governor of South Chungcheong Province Kim Tae-heum, fourth from the left, and company executives pose for a commemorative photo at a memorandum of understanding signing ceremony. Four global companies, including Towa Korea and Webasto Korea Holdings, have agreed to invest $200 million in the province. [SOUTH CHUNGCHEONG PROVINCE]

Many other firms remain optimistic about the potential growth of HBM.

The world's most widely circulated business newspaper, Nikkei Asia, reported on Sept. 18 that Japanese semiconductor equipment firms such as Tokyo Electron, DISCO and TOWA are ramping up their investments to build infrastructure, including factories and research centers, and hire more people in Korea.

The Japanese companies are making significant investments to capitalize on the potential success of Korean firms like Samsung Electronics and SK hynix, which together hold approximately 90 percent of the global HBM market.

“Although semiconductor companies' stock prices have declined, their fundamentals remain strong. Therefore, investments in the market continue,” a Japanese equipment industry insider told the JoongAng Ilbo, an affiliate of the Korea JoongAng Daily.

BY YOON SEUNG-JIN, PARK EUN-JEE, SHIM SEO-HYUN [yoon.seungjin@joongang.co.kr]