Korea’s secondary stock market, the technology-laden KOSDAQ, has recently been on a volatile ride of record highs and sharp falls.
Though some investors maintained hope for another bullish rally, market observers warned late movers against taking rash actions, as bubbles may burst in the market.
Backed by the influx of liquidity and the government’s support for biotechnology and information technology sectors, the KOSDAQ had recently been on a bullish run, surpassing 700 points for the first time in seven years.
But the index plunged by as much as 5 percent last Wednesday, after an herbal medical product was found to contain fake ingredients, leading investors to sell off their bio stocks.
The stock of Naturalendo Tech, the problematic company, traded at 45,400 won at the market opening on Monday, down 48 percent from the closing price last Tuesday, shortly before the dispute broke out.
“The sharp decline showed that investors had previously flocked to the KOSDAQ market, looking for marginal profits,” said Kim Jeong-hwan, researcher at KDB Daewoo Securities.
“But with the Naturalendo Tech case, investors will now set to sort out the stocks, distinguishing the gems from the pebbles.”
It is also advisable for late movers to wait and watch before stepping into the market, he added.
Another trap of the over-the-counter market is that most of the listed companies do not offer valid performance forecast data in advance.
According to corporate financial information provider FnGuide, only 275 or 26.6 percent of the 1,035 KOSDAQ-listed companies presented their forecast for this year.
“KOSDAQ has a number of merits, including the relatively large marginal profit, but is highly unstable,” said Kim Byung-yun, analyst at NH Investment & Securities.
Investors, having little to rely on other than the companies’ quarterly or yearly performance announcement, would easily exit the market upon the slightest volatility, he explained.
