[Why&Next] Buy-Only Reports... 'No Improvement' Without Accepting Diverse Analyses

Corporate Analysis Report, 'Buy' Opinion Still Overwhelming
Investors' Criticism and Insults, Financial Supervisory Service Investigation Also a Burden
"Market Participants Should Know How to Accept 'Sell' Opinions"

The practice of issuing exclusively buy-side reports in the securities industry has not improved. This is due to concerns that publishing sell-side reports may lead to investor criticism and strain the relationship between securities firms and the companies they cover. Accordingly, voices within the industry suggest that unless market participants accept that sell-side opinions are as much a part of corporate analysis as buy-side opinions, the 'buy-only practice' will never be resolved.

Nine out of ten reports are 'Buy'... Sell-side opinions remain rare

According to the Financial Investment Association's electronic disclosure service on the 13th, as of the end of the first quarter this year, the average proportion of 'Buy' investment opinions in corporate analysis reports published by 30 domestic securities firms was 91.1%. This represents a 0.7 percentage point decrease from the end of last year (91.8%). The proportion of 'Neutral' opinions rose by 0.6 percentage points to 8.7% compared to 8.1% at the end of last year, indicating a slight shift from 'Buy' to 'Neutral'. However, 'Buy' opinions still account for an overwhelming majority, exceeding 90%.

On the other hand, the proportion of 'Sell' opinions remained at an average of 0.13%, unchanged from the end of last year (0.13%). This means that among 100 reports issued by securities firms, it is difficult to find even one with a 'Sell' opinion.

By securities firm, only three?Daol Investment & Securities, BNK Investment & Securities, and Hanwha Investment & Securities?showed an increase in the proportion of 'Sell' opinions. Twenty-five firms, including major securities companies such as Korea Investment & Securities, Samsung Securities, and NH Investment & Securities, had no 'Sell' opinions at all.

Notably, the concentration of 'Buy' opinions was more pronounced among small and mid-sized firms. DS Investment & Securities, Kyobo Securities, Buguk Securities, Sangsangin Securities, SK Securities, and Heungkuk Securities all had 'Buy' ratios exceeding 95%. SI Securities, Yuhwa Securities, and Hanyang Securities had 100% 'Buy' opinions.

In contrast, as of the first quarter of this year, the proportion of 'Sell' reports from overseas securities firms was overwhelmingly higher than that of domestic firms. Among 12 foreign securities firms, the average 'Sell' ratio was 18%, with Macquarie Securities at 61.5%, Merrill Lynch at 23.2%, Nomura Securities at 22.0%, and Morgan Stanley at 16.8%.

Financial Supervisory Service's improvement plan stalled... Market change needed to break buy-only practice

In March last year, the Financial Supervisory Service (FSS) formed a task force (TF) and held meetings with CEOs of major securities firms to improve the practice of buy-side bias in corporate analysis reports. During the meetings, the FSS pointed out, "Securities firms have blamed only the market environment without reflecting on their own practices," calling this "very regrettable." It emphasized, "For the establishment of a proper research culture, it is crucial that the securities industry recognizes the problem and makes efforts to self-correct," and added, "An active willingness to change is most important to enhance the credibility of reports."

Subsequently, the FSS proposed alternatives such as improving the performance evaluation system for securities analysts and introducing an independent research company system. However, these improvement plans have not been properly implemented and remain under discussion.

Industry insiders unanimously agree that unless the behavior of market participants who cannot accept 'Sell' opinions improves, the current report practices will be difficult to change. Investors who reject 'Sell' opinions often react aggressively toward analysts issuing negative views on specific companies, sometimes threatening their personal safety. For example, last year, an analyst who issued a 'Sell' opinion amid the overheated stock prices of secondary battery companies was threatened by investors on the streets of Yeouido, Seoul.

A securities analyst said, "Above all, a market atmosphere that accepts 'Sell' opinions as 'analysis' just like 'Buy' opinions is necessary," advising, "Investors can use 'Sell' opinions as a means to critically assess corporate value and market conditions." He added, "If all market participants, including individuals and institutions, recognize the problems and accept what needs to be embraced for a healthy investment culture, it is not an unsolvable issue."

Another financial investment industry official noted, "The reason sell reports are hard to find is that if an analyst issues negative content about a specific company's stock price, it may hinder smooth communication with the company and even lead to unfair treatment. While sell opinions may appear as candid statements to investors, there are practical issues such as discrimination occurring during the process of companies providing necessary information for corporate analysis to analysts."

Some also point out that malicious complaints filed immediately after sell reports are released hinder the creation of a sound market atmosphere. An industry insider said, "Most complaints to the FSS are resolved as 'misunderstandings' or 'lack of understanding,'" adding, "From the analyst's perspective, they must respond to rapidly changing market conditions, but continuous fact-check requests from the FSS inevitably interfere with their analysis activities." He continued, "It seems necessary for the supervisory authorities to review in advance whether such complaints are merely simple grievances," and concluded, "Reducing the time analysts spend on malicious complaints will allow them to focus more on accurate and prompt corporate analysis."

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