[Initial Insight] Research Center Unable to Raise Its Head

[Asia Economy Reporter Lee Seon-ae] "I am too embarrassed to raise my head." This is what everyone says these days when meeting with research center officials at securities firms. The market experts' predictions for this year have been disastrously off the mark. Rather than making forecasts, they have been busy playing catch-up, constantly revising and supplementing their analyses to keep up with market conditions.

The most important task that research centers focus on throughout the year is forecasting the market index for the coming year. At the end of last year, securities firms projected the upper bound of the KOSPI index to reach as high as 3600. None of them forecasted a lower bound below 2800. Optimism, with a greater emphasis on potential rises rather than declines, was dominant.

Of course, unexpected droughts or floods can ruin crops. Conversely, there could be a bumper harvest contrary to expectations. In reality, stock indices belong to the "realm of the gods," or rather, an area even the gods do not know. Therefore, one can understand the difficulties they face in making future forecasts.

Moreover, since everyone the reporter met expressed feelings of embarrassment, it is not fair to only criticize them. They are striving to be trusted "investment guides" for individual investors, and for that, they deserve applause and support.

Nevertheless, it is necessary to address the chronic issues (?) that research centers face. While they may be excused for the "future realm" nature of stock index analysis and forecasting, at least in corporate analysis, self-regulatory efforts are needed to gain trust. No matter how good a stock is, it cannot perform well if the market collapses. However, if it is a good stock, it has strong momentum when the market recovers. That is why individual investors search for good stocks. And what they rely on are the corporate reports issued by research centers.

Is it not embarrassing that the proportion of "sell" recommendations in reports published by research centers has remained at 0.1% for years? Over the past five years, the proportion of sell recommendation reports from domestic research centers has been only 0.1% at year-end each year. The few firms that issued sell opinions were Mirae Asset Securities (0.8%), Daol Investment & Securities (0.6%), and Sangsangin Securities (0.5%). Given this situation, individual investors interpret neutral (hold) opinions as sells. Even those neutral opinions accounted for only 6.6% in the first quarter of this year.

Why are there no sell reports? This stems from structural problems. Securities firms and companies are in a master-servant relationship in terms of profits. Issuing sell opinions inevitably harms the securities firm's corporate sales. Corporate finance is one of the important revenue sources for securities firms. To be entrusted with initial public offerings (IPO), bond issuance underwriting, and acquisition arrangements, they must maintain friendly relationships with companies. Moreover, if a sell report is issued, the company may refuse "corporate visits" or "data provision."

Of course, research centers also have grievances. They may resent the environment that prevents them from providing accurate information to investors even if they want to. When the Galaxy Note 7 exploded in the U.S. in the past, analysts recognized the severity and raised their voices to lower Samsung Electronics' target price, but they could not issue sell opinions. The fire-related negative factors were ignored, and only the semiconductor division with good performance was highlighted. Various interests were intertwined. Although there was no significant impact on performance in the mid-to-long term, individual investors missed important judgment opportunities in the short term. Until the day research centers can analyze properly with "independence" without "reading the room," the tears of retail investors will not dry up.

This content was produced with the assistance of AI translation services.