Half of Stocks Decline Despite Upgrades from Brokerages

Brokerage firms' investment opinions have not served as a reliable guide for stock prices. Approximately half of the stocks that received upgraded ratings from brokerages subsequently saw their prices decline. Conversely, about one in three stocks that received downgrades experienced price increases.

According to data from FnGuide, an analysis of stock price movements for companies that received either upgrades or downgrades from brokerages this year, up to August 12, revealed these trends.

Brokerages typically provide target prices along with their investment opinions, but in the market, changes in investment opinions are often viewed as more direct signals for investors than target price adjustments. While target price changes frequently occur due to shifts in earnings forecasts or valuation changes, a change in investment opinion is interpreted as a fundamental shift in the brokerage's investment judgment regarding that stock. Notably, brokerages tend to be reluctant to issue 'sell' ratings, leading to downgrades being interpreted as de facto sell signals.

Among the 242 stocks that received upgrades, 127 saw their prices rise on the day the report was published, accounting for 52.5% of the total. In contrast, 110 stocks (45.5%) experienced price declines, while 5 stocks (2.1%) remained unchanged. The average increase for the rising stocks was 6.2%, whereas the average decline for the falling stocks was greater at 8.11%.

Looking at the situation over time, the results were not significantly different. As of the closing prices on August 12, only 119 stocks (49.2%) that received upgrades saw their prices increase, while 122 stocks (50.4%) declined. One stock (Dongyang Life) was halted after experiencing a drop. Thus, more than half of the stocks that received upgrades ultimately saw their prices fall. The average increase for the rising stocks was 29.7%, while the average decline for the falling stocks was 21.0%.

In contrast, the directionality for stocks that received downgrades was relatively clear. Among the 114 downgraded reports, 79 stocks (69.3%) saw their prices fall on the day the report was published. Meanwhile, 33 stocks (28.9%) increased, and 2 stocks (1.8%) remained unchanged. The average decline for the falling stocks was 5.2%, while the average increase for the rising stocks was 5.4%. As of the closing prices on August 12, 78 stocks (68.4%) that received downgrades fell, while 36 stocks (31.6%) increased. The average increase for the rising stocks was 21.2%, which was similar to the average decline of 22.1% for the falling stocks.