The local securities industry is engaged in controversy as many brokerage houses have overestimated their outlooks for listed companies’ operating performances, elevating the anxiety of non-institutional investors.
They overestimated the total earnings of companies on the main and secondary bourses by about 20 percent above the actual outcome on average over three quarters from October 2012 to June 2013, according to data of financial info provider FnGuide.
The financial researcher, in partnership with financial regulators, said that during these three quarters, the brokerages’ average estimation of earnings of all listed firms was 71 trillion won ($67 billion), whereas the actual figure barely reached 55 trillion won.
Multiple analysts said that the general overestimation of the listed companies’ earnings can be attributed to unpredictable corporate environment, macroeconomic unpredictability and slow adjustment of the earnings-estimate models.
“Chances are thin that brokerages risk customer trust by elaborately overestimating the numbers to sell more shares,” said Samsung Securities research analyst Kim Seung-woo, adding that such cases seldom happen in companies, particularly in big ones with market capitalization of over 10 trillion won.
He stressed that the prices are in constant fluctuation, and therefore tricky to predict. “In the oil sector, for instance, a $1 change in the oil price can significantly affect the earnings. We estimate the oil companies’ earnings by the average oil price in that quarter, but it is technically impossible for us to pin down when oil will arrive and how much the oil price then would be.”
Another analyst at a major local brokerage partly attributed the overestimating tendency of prospective stock prices to the local market’s needs.
“The nationwide tendency of estimating corporate earnings has been relatively tilted toward the optimistic side compared to overseas, as domestic investors seek information about how much the prices will hike and not how much they will fall,” he said on condition of anonymity.
In contrast to overseas markets, he added, Korea has little demand for short-hedge stock investments that require estimation of price falls as much as price hikes of shares.
“In ideal terms, if the estimation band is too broad, the estimation model should be adjusted to better reflect the actual market. But when the macroeconomy is bad, the estimation becomes harder both for the analysts and the listed companies themselves,” the analyst said.
By Chung Joo-won (
joowonc@heraldcorp.com)
