Korea’s secondary bourse is expected to be bullish in the first half of this year as investors turn their eyes to biotech and pharmaceutical companies, although the momentum will be weaker than last year, according to market analysts. 



Investors are likely to try to lean toward companies on the tech-heavy KOSDAQ market to hedge risks from adverse global business conditions, local strategists forecast, as the main bourse KOSPI relies heavily on foreign investors, making it more vulnerable to external factors like the U.S. interest hike and China’s economic slowdown.

“There will be capital outflow from emerging economies to developed markets due to the weak Chinese economy and higher U.S. rates. In that sense, KOSDAQ may outshine KOSPI,” said Kim Jung-hwan, analyst at KDB Daewoo Securities.

Buoyed by the so-called January effect, which refers to the general increase in stock prices during the month, stocks on the KOSDAQ are likely to rally during the first few months but may weaken during the second half of the year.

“Last year, KOSDAQ’s rally continued for six months until June. But it will be difficult to remain strong for the whole year as the valuations of small and mid-cap firms on the bourse has been outstretched over the past years,” said Oh Tae-dong, analyst at NH Investment & Securities.

According to the Korea Exchange, KOSDAQ jumped 25.6 percent to close at 682 points over the one-year period, while the benchmark KOSPI climbed 2.4 percent to 1,961 points.

In line with profit growth, KOSDAQ’s average return rate surpassed KOSPI’s figure for three years in a row last year and is expected to continue the trend this year, analysts said.

Local companies raised a combined 2.1 trillion won ($1.75 billion) through initial public offerings on the KOSDAQ in 2015, up 79.6 percent from a year earlier. It also marked a 15-year high since 2000.

Bio and health care companies, which led the growth last year, are expected to be in the spotlight again in 2016 along with companies that produce environmentally friendly products as it has become harder to look for growth stories in traditional manufacturing industries.

“But if the U.S. increases its interest rate again between March and April the rally could end in two months this year,” said Choi Ju-hong, a researcher at eBEST Investment Securities.

Experts believes that exceeding the 700-point mark will be a critical point for the KOSDAQ index.

Last year, it breached the 700 mark in July but the figure moved downward and stagnated since August following external risks from China’s market meltdown.

“Once it hits the 700 mark, there’s a possibility that KOSDAQ could shoot up to 780 points,” KDB Daewoo Securities’ Kim said.

By Park Han-na (hnpark@heraldcorp.com)