Brokerages ignored risks to issue buy opinions on short-sold stocks: data

[THE INVESTOR] Local brokerages were reticent to issue sell opinions on stocks that were broadly short-sold, according to industry data on July 8.

Of the top 20 stocks that were short-sold based on July 8 disclosures, more than 70 percent of securities firms here issued a buy opinion over the past three months.

A total of 35 brokerages had issued neutral opinions, with just one having a sell opinion. 

Short-selling is essentially betting that a stock’s market value will decline. Investors sell shares they have borrowed with a promise they would replace them within a set period of time. If the stock actually falls, they make money.

Despite this being the case, local brokerages were reluctant to encourage investors to sell.

For instance, 13 brokerages out of 14 that issued a report on Hotel Shilla issued a buy opinion despite the fact that the stock was second-highest in terms of short-sales among local listed stocks.

The share price, which had been around 70,000 won (US$60) this May, closed 0.75% percent lower at 66,400 won on July 8.

Samsung Heavy Industries was the only listed stock suffering from massive short-selling that brokerages had a sell opinion on.

By Kim Ji-hyun (jemmie@heraldcorp.com)