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KOSDAQ Venture Funds Fuel Bio Stock Bubbles
A Cause of Stock Price Fluctuations
KOSDAQ Venture Funds Fuel Bio Stock Bubbles
  • By Yoon Young-sil
  • July 19, 2018, 10:54
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The Kosdaq Venture Funds, which have been created by the government’s policies designed to vitalize small and medium sized companies, have become the main reason that disturb the market.
The Kosdaq Venture Funds, which have been created to vitalize small and medium-sized companies, have become the main force that disturbs the stock market.

Bio companies that were listed on the stock market this year saw their stock prices go up for a while before falling sharply below the listing prices.

Behind this abrupt price movements were the Kosdaq Venture Funds, which were created under a government policy to vitalize venture companies.

These funds joined the scramble among institutional investors to purchase publicly offered bio stocks, pushing their prices above market estimates. However, their overblown stock prices plummeted after the listing amid concerns about bubbles.

Market experts point out that the Kosdaq Venture Funds have become the main force that disturbs the market.

In particular, there is growing concern over the possibility that healthcare companies that plan to file for an initial public offering (IPO) later this year could be undervalued in the market as the investor sentiment for bio firms has cooled off amid the recent financial authorities’ investigation of Samsung BioLogics Co.’s alleged accounting fraud.

According to the Korea Exchange (KRX) on July 18, eight bio companies, which were listed on the Kosdaq market in the first half of this year, saw their stock prices decrease 33.25 percent on average from the date of the listing until the 18th. Osteonic Co., which was listed on February 22, recorded the biggest drop of 53.44 percent. Only Enzychem Lifesciences Corp. showed an increase in stock price at 6.57 percent. ICURE Pharm Inc., which made a debut in the Kosdaq market on the 12th, also saw its stock price drop 18.98 percent during the four trading days from the 13th. In addition, OliX Pharmaceuticals Inc., which was listed on the same day, posted an 8.99 percent decrease from the opening price.

The Kosdaq Venture Funds are considered one of the factors that make bio companies’ share prices fluctuate. The government established the funds in April with an aim to promote small and mid-size firms through the stock market. The funds are required to invest 15 percent of their assets in venture companies' new stocks and 35 percent in new and old stocks of Kosdaq-listed companies that outgrew the venture company title less than seven years ago.

The Kosdaq Venture Funds have been popular since the launch day as they allow investors to invest in IPO stocks and give tax benefits. As a result, money has flowed into stocks for public subscriptions, including bio shares.

The offering prices of bio firms that recently went public were excessively higher than usual. According to investment banking (IB) industry sources, the offering price of six venture companies, which went for a public offering on the Kosdaq market after April when the Kosdaq Venture Funds was released, was set surpassing the offering price band. Considering the fact that only six out of 50 companies listed on the Kosdaq market last year saw their offering prices exceed the expected band, there is a sharp increase in the number of companies that show excessive offering prices in a short period of time. However, these companies all showed a brief rise in stock prices after the listing and then a nosedive.

In this regard, experts say that the Kosdaq Venture Funds have excessively boosted offering prices and this has led to market distortion. An official from the securities industry said, “When individual investors invest in stocks for public subscription, they have no choice but to refer to institutions’ demand forecast competition rates. Individual investors invested in relevant companies’ shares, driven by high competition rates of institutions, and this led to a large short-term increase after the listing on the Kosdaq market. However, the drop in stock prices grew further after institution investors went on a selling spree.”

As the rate of return on invested stocks in a public offering fell, the Kosdaq Venture Funds also shows poor earnings rates. Out of 12 Kosdaq public offering venture funds, only “Asset One Public Offering Kosdaq Venture Firm” of Asset One Co. made a profit at 4.09 percent between the date of the launch and the 13th. The rate of return on “KTB Kosdaq Venture” of KTB Asset Management Co., which attracted the largest amount of funds, stood at minus 3.46 percent and other public offering funds showed a loss as well.

As investors' confidence for bio companies have been shrunk owing to the recent Samsung BioLogics issue, the outlook for market evaluation of bio firms, which plan to go public in the second half of the year, is also dim. A considerable number of bio companies, such as Union Korea Pharm Co., Hana Pharm Co., Avellino Labs Ltd. and S.Biomedics Co., are seeking to list on the stock market later this year. However, they are expected to have difficulties in attracting investment since the corporate evaluation of bio firms has been becoming stricter, mainly accounting standards, due to the recent Financial Services Commission (FSC)’s investigation into Samsung BioLogics. ICURE, which was listed on the 12th, the day the FSC announced the investigation results of Samsung BioLogics, saw its stock price fall for four consecutive trading days until 18th, except for the day of the listing, showing the frozen investment sentiment for bio firms.