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(News Focus) Concern looms over minor bourse's bubble

All Headlines 11:21 November 16, 2017

By Kwak Young-sup

SEOUL, Nov. 16 (Yonhap) -- Concern is growing over a possible bubble in South Korea's secondary stock market that has been recently on a tear on listed firms' sharp earnings gains, analysts said Thursday.

Driven mainly by strong earnings momentum, the benchmark index of the tech-laden KOSDAQ market closed up 1.53 percent at 769.03 on Wednesday, ending higher for six sessions running and surpassing the 760-point level for the first time in 28 months.

The white-hot pace of the minor bourse has also been fueled by the Moon Jae-in government's push to develop new-growth industries, a possible money inflow from the state pension and other funds and other positives.

Some watchers and investors expressed concern over a potential overheating, saying the minor bourse could undergo a bubble burst just as it did in 2000 following a venture boom.

The current price surge is bolstered mainly by a policy-driven supply and demand situation without being clearly backed by earnings and other fundamentals, they said.

"The market value of biotech company Sillajen, which has been listed for less than a year, is even larger than that of major drugmaker Hanmi Pharmaceutical Co.," said Lee Jong-woo, a senior researcher at IBK Investment & Securities Co. "It is impossible to explain the current market situation from a common sense viewpoint."

During the 2000 collapse of the information technology bubble, the KOSDAQ index nose-dived 82 percent over a nine-month period, he said, warning the price index may go up a little bit but the end could be "intimidating and appalling."

But other analysts dismissed such concerns as excessive, citing strong earnings of companies registered on the tech-heavy stock market.

(News Focus) Concern looms over minor bourse's bubble - 1

"Growth of next year's earnings by KOSDAQ-listed firms is widely expected to hover above that by companies listed on the main stock market," said Lee Chang-mok, head of the research division at NH Investment & Securities Co. "The recent bull run of the market is fueled by resilient corporate earnings, which is different from the venture boom in 2000."

Kim Young-joon, a chief researcher at Kyobo Securities Co., expressed a similar view. "It is true that the too-fast growth pace of pharmaceutical and biotech stocks seems burdensome, but the index is projected to go up down the road, driven by strong earnings."

Indeed, the combined net profit of KOSDAQ-registered companies shot up 48.5 percent on-year to 5.3 trillion won (US$4.8 billion) in the first three quarters of this year. The on-year gain far exceeds the 34.2 percent annualized increase in the total bottom line of firms listed on the main bourse.

Despite the stellar performance, pessimists remained worried about the concentration of earnings in biopharmaceutical and some other sectors and biopharmaceutical firm and top-cap Celltrion Inc.'s move to the main bourse during the first half of next year.

"The combined market cap of Celltrion and its two units exceeded that of top automaker Hyundai Motor Co.," said Lee IBK Investment & Securities. "Celltrion's move to the main bourse is likely to have a negative impact on the KOSDAQ market.

"The surge in IT share prices in 2000 had its own momentum, and there are reasonable reasons for the current rise in biotech stocks," he said. "It's important to think commonsensically. I am not sure the current situation is different from that in 2000."

Yet most analysts painted a rosy picture of the KOSDAQ's performance next year, citing a combination of brisk corporate earnings, the government's policy drive to bolster new growth engines and ample liquidity.

In a recent research note, KB Securities Co. forecast the KOSDAQ index to reach the 1,000-point level in the coming year. "Growth momentum of South Korea's smaller and tech companies is expected to continue next year amid a global economic recovery, with their earnings gains emerging slowly," Im Sang-guk, a researcher at KB Securities.

"The minor stock market is also expected to get a boost from government measures to invigorate the venture and startup sectors as well as pension and state funds' plans to expand their exposure to KOSDAQ-traded firms," he added.

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