How Can a Single JP Morgan Report Send a Bourse Tumbling?

      June 10, 2013 14:12

      Shares of Samsung Electronics, the biggest listed company on the Korea Composite Stock Price Index, plummeted 6.18 percent on Friday. The drop sent jitters across the entire stock market, causing the KOSPI to close down 1.8 percent at 1,923.85 points and the Kosdaq down 2.43 percent at 535.75.

      The reason was that JP Morgan slashed its share price forecast for Samsung from W2.01 million to W1.9 million (US$1=W1,119). JP Morgan in a report said Samsung's latest Galaxy S4 smartphone is selling worse than expected and the electronics giant will see earnings slow after the third quarter. The forecast prompted other foreign brokerages to dump Samsung shares.

      Last year, Samsung affiliates achieved a combined operating profit of W39 trillion, while the firm's smartphone sales alone accounted for W19 trillion. The latter figure was equivalent to almost 40 percent of the combined operating profits of Korea's top 100 listed companies last year, so it is not surprising to see the KOSPI catch cold when Samsung is being sneezed on.

      But the incident shows once again that market sentiment remains overly reliant on the reports of foreign brokerages. Domestic pension funds and other institutional investors bought only a limited number of Samsung shares as foreigners dumped them and grabbed a huge number of other IT shares much as foreign investors did.

      During the Asian financial crisis of 1997, too, domestic investors followed foreign investors as they got rid of Korean shares based on a report by a Hong Kong investment firm that warned against the burst of the Korean market.

      Samsung shares will rebound if smarphone sales recover, which will stabilize the stock market here. But the local stock market will have a very hard time achieving any fundamental improvements as long as investors are buffeted hither and yon by every new guesstimate from some foreign gambling house.

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