A loss-making apparel company’s mysterious nine-day rally on KOSDAQ has many investors questioning the stability of the country’s secondary bourse, which last year pulled off one of the world’s best gains.

Codes Combine shares skyrocketed in suspicious moves, leading the entire index to faze with market distortions. The bourse operator Korea Exchange is currently looking into the seemingly unexplainable rally, suspecting a potential price-rigging scheme. 

Shares in Codes Combine plunged 30 percent to end at 98,700 won ($84) on Thursday after an explosive rally between March 2 and Tuesday that pushed the stock price 559 percent higher. The firm’s market capitalization accordingly grew, making it the third largest on KOSDAQ, from outside the top 20 list two weeks ago.

Its rally also drove the overall index to stage a strong performance, jumping to close at 700 points from 662.25 points on March 2. The KOSDAQ index shed 0.28 percent, or 1.95 points, Thursday to finish at 691.49.

Although the rally ended Wednesday with the launch of a probe, experts warn that the case exemplifies how the KOSDAQ market is vulnerable and easily manipulated.

“If Codes Combine is excluded, the KOSDAQ index will shrink to between 670 and 680 points,” said Kim Hyung-rae, analyst at Deawoo Securities, meaning that if the clothing maker’s share price plunges, the entire market could suffer a blow.

Analysts said KOSDAQ’s vulnerability stemmed from the absence of heavyweight stocks.

Currently, only nine companies’ market cap exceed 2 trillion won out of 1,163 firms listed on the tech-heavy exchange.

“The fact that a company which can be kicked out with one more loss-making year could become the No. 3 stock on the KOSDAQ market shows the market’s instability,” an analyst at IBK Investment and Securities said.

Codes Combine, having logged operating losses for four consecutive years, is on the bourse’s watch list for a potential delisting. The bourse operator should make sure that its stock market surveillance system is fully under control, he added.

Losing credibility is major concern for the KRX which has been actively inviting local and foreign companies to be listed on the KOSDAQ.

“KOSDAQ-listed firms have a strong tendency to migrate to the main bourse KOSPI as they see the secondary bourse is less competent,” said Han Yo-seop at KDB Daewoo Securities.

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