Kicked out by SK Hynix! Morgan Stanley, Korea's semiconductor pessimist, is struggling to hold on in Korea

Original Author: Zhang Yaqi

Original Source: Wall Street Sights

Today, the South Korean stock market has plummeted back into the "ICU."

SK Hynix and Samsung Electronics both fell more than 7% during trading, and the KOSPI index once dropped over 6%, triggering a circuit breaker. According to media reports, the catalyst for the sharp decline is linked to Shawn Kim, the head of Asia-Pacific Technology Research at Morgan Stanley, who has been dubbed the "Korean semiconductor grim reaper."

In a report released on July 21, he warned that the AI-driven semiconductor memory industry frenzy is approaching an inflection point. Memory contract prices are expected to peak in the fourth quarter, and the proportion of net profit upgrades has fallen from a peak of 92% to 77%. Although some analysts suggest that Shawn Kim's report was used to create panic and may not be the primary cause of the decline, the impact is undeniable.

But this time, Shawn Kim's report didn't just roil the market; it also placed Morgan Stanley in a far more awkward position.

This top Wall Street investment bank, known for its long-standing bearish reports on South Korean semiconductors, is now facing consecutive setbacks in the Korean market — from being excluded from the list of lead underwriters for SK Hynix's U.S. listing to multiple major deals falling through. It is facing increasing reputational and commercial pressure in its Korean operations.

The most symbolic event is SK Hynix's American Depositary Receipt (ADR) listing project, valued at approximately $26.5 billion. Bank of America, Citigroup, Goldman Sachs, and JPMorgan Chase were selected as joint lead underwriters, leaving Morgan Stanley as the only top-tier investment bank excluded. Based on a 0.5% underwriting fee, the total commission for this listing is approximately $130 million. For an institution that prides itself on super IPOs like SpaceX and Anthropic and is considered a leading candidate to underwrite an OpenAI IPO, this exclusion is not just a financial loss but a significant blow.

Repeated Bearish Calls, Dubbed the 'Korean Semiconductor Grim Reaper'

In South Korean investment circles, mentioning Morgan Stanley's research department inevitably leads to Shawn Kim. This Korean-American Managing Director joined Morgan Stanley in 2002, currently oversees technology research for Europe and Asia, was previously based in Seoul and Hong Kong, and now resides in London. He has built a formidable influence in the Korean market through a series of sharply worded semiconductor reports, earning him the nickname "Korean Semiconductor Grim Reaper."

Over the past decade, he has repeatedly issued warnings near the peaks of Korea's semiconductor cycle: In 2017, he released a report bearish on NAND prices and forecasting memory oversupply. In August 2021, he published "Memory, Winter is Coming," which accurately foreshadowed a two-year semiconductor downturn. In September 2024, his report on the potential oversupply of HBM was considered one of the triggers for the sharp declines in Samsung Electronics and SK Hynix stock — 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, recommended reducing holdings in memory semiconductor stocks such as Samsung Electronics, SK Hynix, and Micron. With the market already under downward adjustment pressure, this move was described by Korean industry insiders as "rubbing salt in the wound."

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

Nevertheless, Joseph Moore, Morgan Stanley's U.S. semiconductor analyst, holds a more optimistic view. He believes that AI data center investments will make DRAM memory a core bottleneck, with supply shortages potentially lasting until 2028. The root of their disagreement lies in their different perspectives: Joseph Moore focuses on the capital expenditures of major U.S. cloud providers, while Shawn Kim pays more attention to early warning signals emerging from Asian distribution channels.

After Being Sidelined by SK Hynix, Morgan Stanley Begins to Reflect: Don't Mess with Korean Semiconductors

SK Hynix's ADR listing is the largest IPO by a foreign company in U.S. history. Morgan Stanley's absence has triggered immediate repercussions internally.

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

"Did we lose the SK Hynix business because of negative reports from Shawn Kim and others? We need to be more cautious going forward."

This sentiment has also spread to Morgan Stanley's business lines responsible for fundraising from Korean institutional clients. According to Korean media reports, complaints have emerged from related departments:

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

This rift reflects a structural dilemma common to international investment banks: the tension between the independence of the research department and the commercial interests of the investment banking business. If research reports are interpreted by the market as manipulation for business purposes, it damages credibility. Conversely, if self-censorship is practiced to protect client relationships, the reports lose their research value.

A head of a major Korean investment institution said, "Morgan Stanley's deals in Korea have been repeatedly thwarted, and they seem to have entered a mode of self-reflection recently. Being the only one excluded from the SK Hynix listing project has been a significant shock to them."

Trouble Isn't Over: Multiple Major Deals Fall Through One After Another

The SK Hynix project is not an isolated incident. Several transactions recently participated in or led by Morgan Stanley in Korea have failed to reach a successful conclusion.

The most notable is the controversy related to the SpaceX IPO. According to Mirae Asset Securities, a well-known Korean securities firm, it subscribed for $1.14 billion through the underwriting system led by Morgan Stanley between June 5 and 10. While it received a "confirmation" receipt, it ultimately received zero allocation. Internally, Mirae Asset suspects that Morgan Stanley omitted its subscription when transferring the work to joint lead underwriter Goldman Sachs. As IPO allocation rights are entirely at the discretion of the underwriters, Mirae Asset cannot officially pursue action. According to a Bloomberg report on June 30, the failed allocation was attributed to Mirae Asset's operational error. On July 14, Mirae Asset filed a civil lawsuit against Bloomberg over the matter, escalating the issue into a legal confrontation between a major Korean securities firm and an international media outlet. The Financial Supervisory Service of Korea has completed its on-site inspection, and the results are expected to be announced in a few months.

Another equally embarrassing case is the sale project of IGIS Asset Management, led jointly by Morgan Stanley and Goldman Sachs. IGIS is Korea's largest real estate asset manager, with 73 trillion won under management, including 2 trillion won entrusted by the national pension fund. In December last year, the two investment banks designated Singapore-based Hillhouse Capital as the preferred acquirer, but Hillhouse eventually withdrew due to financing issues. A competing bidder subsequently filed a police report, alleging that pricing information was unilaterally leaked to Hillhouse during negotiations, involving five people including IGIS's controlling shareholder and Morgan Stanley personnel. Meanwhile, reports surfaced that details of the national pension fund's entrusted investments were leaked during the due diligence process, drawing regulatory attention.

An earlier case 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 uproar. Celltrion questioned the report's credibility, and speculation arose in the market 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: the inherent tension between the independence of the research department and the commercial interests of the investment banking business.

If research reports are interpreted by the market as manipulation for business purposes, their credibility is damaged. But if self-censorship is practiced to protect client relationships, the reports lose their research value.

For Morgan Stanley, the controversy surrounding Shawn Kim's reports is not simply about "bearish calls inviting retaliation." Looking back, his bearish calls in 2017 and 2021 were subsequently proven to be somewhat forward-looking, while his HBM forecast in 2024 proved inaccurate. The root of his influence lies in the fact that semiconductors are a classic cyclical industry. When optimistic sentiment peaks, contrarian warnings can often trigger asset allocation adjustments by foreign institutions, leading to tangible impacts on the Korean stock market.

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

This latest report from July 21 is more methodologically refined than previous ones. It constructs a framework for predicting a price peak in the fourth quarter by cross-verifying multiple signals such as NAND module inventory weeks, the proportion of profit upgrades, and contract price growth rates. Morgan Stanley estimates the upper limit of HBM supply growth at around 40%. The report also incorporates a total addressable market of approximately $25 billion into the memory innovation track, covering multiple technological pathways including capacity, bandwidth, and power consumption.

An investment banker summed it up succinctly: "For an investment bank, a successful transaction record is a core performance indicator. The accumulation of failed cases inevitably becomes a burden."

Morgan Stanley's current predicament in Korea may be the most realistic illustration of this logic.