Kicked out by SK Hynix! Morgan Stanley, the "Korean semiconductor bear expert," is struggling to survive in South Korea

Original Author: Zhang Yaqi

Original Source: Wall Street Snapshot

Today, the South Korean stock market has once again fallen into the "ICU."

SK Hynix and Samsung Electronics both fell by more than 7% during intraday trading, and the Korea Composite Stock Price Index (KOSPI) once fell by over 6%, triggering a circuit breaker. According to media reports, the trigger for the sharp decline is related to Shawn Kim, Morgan Stanley's Head of Asia-Pacific Technology Research dubbed the "Grim Reaper of Korean Semiconductors."

In a report released on July 21, he warned that the AI-driven semiconductor memory industry rally is nearing an inflection point, with memory contract prices expected to peak in the fourth quarter. The ratio of net profit upgrades has dropped from a peak of 92% to 77%. Although some analysts argue that Shawn Kim's report was used to create panic and may not be the cause of the crash,

This time, however, Shawn Kim's report not only stirred the market but also placed Morgan Stanley itself in a more awkward predicament.

This Wall Street investment bank, known for its long-standing bearish reports on South Korean semiconductors, is facing a series of setbacks in the Korean market—ranging from being excluded from the lead underwriter list for SK Hynix's US listing to having multiple significant deals fall through. Its business in South Korea is increasingly suffering reputational and commercial damage.

The most symbolic event this time is SK Hynix's approximately $26.5 billion American Depositary Receipt (ADR) listing project. Bank of America, Citigroup, Goldman Sachs, and JPMorgan Chase were selected as joint lead underwriters, leaving Morgan Stanley as the only top-tier bank excluded. With an underwriting fee rate of 0.5%, the total commission for this listing is around $130 million. For an institution that prides itself on super IPO projects like SpaceX and Anthropic, and is seen as a potential lead underwriter for OpenAI's listing, this exclusion is not just a financial loss but a direct blow.

Repeatedly Bearish, Earning the Nickname "Grim Reaper of Korean Semiconductors"

In South Korean investment circles, discussion of Morgan Stanley's research department inevitably involves Shawn Kim. This Korean-American Managing Director joined Morgan Stanley in 2002 and is currently responsible for overseeing European and Asian technology research. He has been based in Seoul and Hong Kong and now resides in London. In the Korean market, he has built significant influence through a series of stark semiconductor reports and earned the nickname "Grim Reaper of Korean Semiconductors."

Over the past decade, he has repeatedly issued warnings near the peak of South Korea's semiconductor cycle: In 2017, he released a report bearish on NAND prices and memory oversupply. In August 2021, he published "Memory, Winter is Coming," which accurately predicted the subsequent two-year semiconductor downturn. In September 2024, his report on the potential oversupply of HBM was considered one of the triggers for the sharp decline in Samsung Electronics and SK Hynix stock prices that year—and Morgan Stanley later admitted to errors in its short-term earnings forecast for SK Hynix.

On July 6, Morgan Stanley's equity strategy team, led by Chief Investment Officer Michael Wilson, again recommended reducing holdings in memory semiconductor stocks like Samsung Electronics, SK Hynix, and Micron. As the market was already under downward adjustment pressure, this move was described by the Korean industry as "rubbing salt in the wound."

Shawn Kim's latest report is more systematic: NAND module manufacturer inventory has risen to about 13 weeks, approaching the peak level of around 15 weeks seen during the pandemic; spot prices are weakening; some cloud service providers have indicated ample inventory, including Tencent, which has reportedly stocked up on about 90% of its needs (this data source and methodology have not been officially confirmed). He also proposed a trading logic of "sell DRAM when NAND declines," linking the two sub-markets into a single cyclical narrative.

Nevertheless, Morgan Stanley's US semiconductor analyst Joseph Moore holds a more optimistic view—he believes AI data center investments will make D-RAM a core bottleneck, with supply shortages possibly extending into 2028. The source of their disagreement lies in their different perspectives: Joseph Moore focuses on the capital expenditure of major US cloud companies, while Shawn Kim pays more attention to early warning signals emerging from Asian distribution channels.

After Being Excluded by SK Hynix, Morgan Stanley Begins to Reflect: Korean Semiconductors Are Not to Be Trifled With

SK Hynix's ADR listing is the largest IPO by a foreign company in US history. Morgan Stanley's absence triggered direct repercussions internally.

According to several investment bankers (including former Morgan Stanley executives), a sentiment has spread within the Seoul office:

"Is it because of negative reports by Shawn Kim and others that we lost this SK Hynix deal? We need to be more cautious going forward."

This sentiment has also spread to the Morgan Stanley business lines responsible for fundraising from Korean institutional clients. According to Korean media reports, there have been complaints from relevant departments:

"How are we supposed to do business like this?"

This rift reflects a structural dilemma commonly faced by international investment banks: the tension between research independence and the commercial interests of the investment banking business. If research reports are interpreted by the market as being manipulated for business purposes, it damages credibility. But if they self-censor to protect client relationships, they lose their research value.

One head of a major domestic investment institution stated, "Morgan Stanley has suffered repeated setbacks in Korean transactions. Recently, it seems to have entered a mode of self-reflection. Being the only one excluded from the SK Hynix listing project has been a significant blow to them."

More Trouble Than One: Multiple Major Deals Fall Through

The SK Hynix project isn't an isolated incident. Several transactions Morgan Stanley participated in or led recently in South Korea have not ended well.

The most notable controversy involves the SpaceX IPO. According to Mirae Asset Securities, a prominent Korean brokerage firm, it subscribed for $1.14 billion through the system led by Morgan Stanley between June 5 and June 10 and received a "confirmation" receipt, but ultimately received no allocation. Mirae Asset internally suspects that Morgan Stanley omitted this subscription when transitioning the work to co-lead underwriter Goldman Sachs. Because IPO allocation rights are entirely at the discretion of the underwriters, Mirae Asset cannot formally seek accountability. A Bloomberg report on June 30 stated that the failure was due to an operational error on Mirae Asset's part. On July 14, Mirae Asset filed a civil lawsuit against Bloomberg over the matter, escalating the issue into a legal battle between a major domestic brokerage and an international media outlet. South Korea's Financial Supervisory Service has completed an on-site inspection, with results expected to be announced in a few months.

Another similarly awkward case involves the sale project of IGIS Asset Management, led jointly by Morgan Stanley and Goldman Sachs. IGIS is South Korea's largest real estate asset management company, managing assets worth 73 trillion Korean Won, including 2 trillion Korean Won in entrusted funds from the National Pension Service. In December last year, the two investment banks designated Singaporean institution Hillhouse Capital as the preferred acquirer, but Hillhouse ultimately withdrew due to financing issues. Competing bidders subsequently reported to the police that price information was unilaterally leaked to Hillhouse during negotiations, implicating five people, including individuals from IGIS's controlling party and Morgan Stanley. Meanwhile, reports surfaced that details of the National Pension Service's entrusted investments were leaked during the due diligence process, drawing regulatory attention.

An earlier example dates back to 2017-2018, when Morgan Stanley published a report predicting that the stock price of biopharmaceutical company Celltrion would halve, causing a major market stir. Celltrion questioned the report's credibility, leading to market speculation linking the report to short-selling activities.

A Deeper Predicament: Research Independence vs. Business Interests

Behind this turmoil lies a structural dilemma commonly faced by international investment banks:

There is an inherent tension between the independence of research departments and the commercial interests of the investment banking business.

If research reports are interpreted by the market as being manipulated for business purposes, it damages credibility. However, if they self-censor to protect client relationships, they lose their research value.

For Morgan Stanley, the controversy over Shawn Kim's reports is not simply a case of "bearish calls inviting retaliation." Looking back, his bearish judgments in 2017 and 2021 proved to be forward-looking. His 2024 forecast on HBM, however, turned out to be off the mark. The root of his influence lies in the fact that semiconductors are a typical cyclical industry: when optimism peaks, contrarian warnings can quickly prompt asset allocation adjustments by foreign institutions, thereby creating a tangible impact on the South Korean stock market.

From a valuation perspective, the price-to-book ratios of Samsung and SK Hynix have fallen back to around 1.7 times and 2.5 times, respectively, both significantly lower than recent highs but still above their long-term historical averages. This valuation range reflects the market's neutral pricing logic that the memory industry is neither a pure cyclical stock nor is the AI narrative fully realized.

The latest report from July 21 is more methodologically refined than previous ones: it cross-validates multiple signals, including NAND module inventory weeks, profit upgrade ratios, and contract price growth rates, to construct a framework for predicting a price peak in the fourth quarter. Morgan Stanley estimates HBM supply growth to be capped at around 40%, and the report also incorporates a total addressable market of approximately $25 billion in the long term for the memory innovation track, covering various technological pathways like capacity, bandwidth, and power consumption.

One investment banker summed it up bluntly: "For investment banks, a successful transaction record is a core performance indicator, and an accumulation of failures inevitably creates a burden."

Morgan Stanley's current predicament in South Korea may be the most realistic footnote to this logic.