Concerns amid Booming
The secondary KOSDAQ market has continued on an upward swing from October, it surpassed the main bourse KOSPI in terms of an annual rate of returns for the first time on November 21. In particular, individual investors have gained higher returns on the bullish KOSDAQ market after October. However, there are concerns that only biotech firms are driving the bullish run on the KOSDAQ just like tech heavyweights such as Samsung Electronics and SK Hynix on the KOSPI.
The KOSDAQ index closed at 789.38 on the 21st, up 0.52 percent, or 4.06 points, from the previous session. The KOSPI index also slightly jumped 0.12 percent, or 3.03 points, to close at 2,530.7 on the same day. However, the KOSPI’s increase fell short of that of the KOSDAQ. The annual earnings rate of the KOSDAQ index increased 25.01 percent compared to 631.44 of the closing price last year, surpassing that of the KOSPI with 24.88 percent over the same period for the first time. The KOSDAQ index failed to let itself go with the upturn on the KOSPI market in the first half of this year but it has soared more than 20 percent since October due to the expectations for the government’s new policy.
Individual investors made a bigger gain than foreign and institutional investors from the rising KOSDAQ market. According to the Korea Exchange (KRX), the average earnings rate of the top 10 stocks net bought by individual investors the most stood at 60.56 percent during October to November 20 when the KOSDAQ index showed the upward trend in earnest. The figure exceeded that of foreign investors with 51.86 percent and institutional investors with 42.65 percent during the same period. AbClon Inc. had the highest rate of returns among the top 10 stocks net bought by individual investors. The price of AbClon shares grew a whopping 220 percent from 21,000 won (US$19.21) on October 10 to 72,700 won (US$66.51) on November 20. Telcon Inc also showed a 160 percent rise over the same period.
Cho Seung-bin, an analyst at Daishin Securities, said, “There will continuously be expectations for the KOSDAQ market until the government announces ‘KOSDAQ market-focused capital market innovation plan’ in December. As large-cap stocks on the KOSDAQ are highly likely to introduce the benchmark index, it will take continued focus for the KOSDAQ 150’s exchange traded funds (ETF).” Since the government is expected to come up with its detailed plans, including the expansion of investment in the KOSDAQ market by the National Pension Service (NPS), in December, the KOSDAQ index will rise further until then.
On the other hand, there are growing concerns over excessively bullish biotech stocks. As the stock price of biotech firms went up on the same day, the KOSDAQ surpassed the 790 level during the intra-day trading. The KOSDAQ market was driven by expectations for TissueGene's Invossa and SillaJen’s Pexa-Vec. The stock price of top four KOSDAQ-listed firms by market capitalization – Celltrion, Celltrion Healthcare, SillaJen and TissueGene – all reached 52-week highs.
Yum Dong-chan, an analyst at eBEST Investment & Securities, said, “The current upturn of biotech companies that lead the KOSDAQ market depends on expectations rather than business showings and fundamentals. As their price increases caused by overheating are highly likely to be adjusted, investors need to have a conservative approach.” In the market, the trend that biotech stocks absorb most of the supply and demand in the market continues. According to the KRX, the index of KOSDAQ-listed biopharmaceutical companies in the fourth quarter surged 35.57 percent as of the 20th. The figure is two times higher than 19.97 percent of the increase in the KOSDAQ index during the same period. Considering the price earning ratio (PER), the valuation of biotech firms is overrated.
KOSDAQ bellwether and biosimilar maker Celltrion’s PER came to 93.94 as of the 21st, 10 times higher than 9.15 of KOSPI bellwether Samsung Electronics.