Bye bye sell
Feb 5th 2009 | HONG KONG AND SEOUL
From The Economist print edition
Tired of bad news about the financial markets? Censor it
NOT so many years ago brokers were prosecuted in America for shamelessly plugging the dogs of the dotcom boom. Consider it a sign of the times that governments in South Korea and Taiwan are now quietly encouraging brokers to accentuate only the positive.
The methods may differ, but if you have something critical to say and it somehow becomes public knowledge, you should brace yourself for unpleasant consequences. In December the Taiwan Securities Association, a trade body, reminded brokers, on behalf of the government, that the press must receive the firm’s approval before quoting research.
When critical brokers’ opinions are cited in newspapers, regulators now want “explanations”. On February 4th CLSA, a regional broker, issued a report saying Taiwan’s economy had deteriorated sharply. The press jumped on the report, and the government jumped on CLSA, which quickly issued a statement. The report was intended for clients alone and CLSA had not changed its investment opinions. Regulators have insidiously suggested that investment firms take a harder line by suing media outlets that report on their opinions.
In South Korea, a reluctance to issue sell recommendations has already taken hold. Of the 17,335 reports issued by South Korean brokers in 2008, there were 14,903 “buy” recommendations but not a single “sell”, according to FnGuide, a Seoul-based financial-information company. At best, that reflects poor analysis: the stockmarket tumbled 41% during the year.
But something more sinister may be afoot. JPMorgan, an American investment bank, was the target of an investigation by the Financial Supervisory Service after it suggested that problem loans at South Korea’s Hana Bank may be higher than the bank’s own estimates. Switzerland’s Credit Suisse was denounced by Hyundai Securities, which publicly castigated the firm after it halved its target price for the South Korean broker. One analyst recalls a threatening telephone call from a sushi-restaurant owner after he issued a “sell” recommendation: “I have many sharp knives. Stay away from dark alleys,” the man said.