Interest in OTC stocks increases

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Interest in OTC stocks increases


Investor interest in over-the-counter (OTC) stocks is on the rise as the government is encouraging unlisted companies to go public. According to Presdaq, a brokerage website specializing in unlisted companies’ stocks, some unlisted stocks in biotech industries, cosmetics and high-tech machinery have been increasingly popular.

“Trading of over-the-counter stocks is active, especially involving midsize firms with technology potential and stable financial status or unlisted affiliates of conglomerates,” said Jeong In-sik, the CEO of Presdaq.

Notable examples include cosmetics manufacturer GDK Cosmetics, which is popular for its skin-care face masks, drug maker PharmAbcine and oil refiner Hyundai Oilbank.

Prices of PharmAbcine stock rose by more than 50 percent in the first three months of this year as the company was reportedly planning to go public in the second half of this year on the secondary Kosdaq market. The drug maker was trading at 43,000 won ($37.19) on Thursday.

The biggest advantage of investing in OTC stocks is that it offers a chance to invest in a company well before its initial public offering.

In the period immediately leading up to an IPO, the price of a company’s shares increases substantially as investors compete to subscribe. After going public, stock prices oftentimes drop below the public offering price.

To buy OTC stocks, investors with an existing account at a brokerage can use websites like Presdaq, Jstock and 38 Communication or the K-OTC market, which is operated by Korea Financial Investment Association (Kofia).

The lack of a brokerage firm to act as an intermediary makes trading OTC stocks riskier, and investors are urged to verify the identities of the people they trade with.

The volume of OTC stocks is a lot smaller than that of stocks on the listed market, so trades may happen less frequently.

OTC stocks are also risky because IPOs can sometimes be unexpectedly delayed or cancelled.

This was the case with popular low-end cosmetics company Nature Republic. It was initially scheduled to go public on the primary Kospi market in the second half of 2015. The news pushed the company’s OTC stock prices up to 160,000 won per share. But the IPO was canceled after the company’s CEO, Chung Woon-ho, was imprisoned on charges of illegally gambling more than 10 billion won abroad. The company’s shares subsequently plunged to 60,000 won.

Investors also should remember that not all stocks see their prices jump after an IPO. OTC stocks of DoubleU Games, a mobile game developer, were initially traded at up to 7 million won per share early last year, but the price fell to 60,000 won right after the company went public on Nov. 4. As of Wednesday, DoubleU Games shares were priced at 36,050 won.

“Investors should purchase stocks based on how sustainable a company’s growth is predicted to be, rather than its immediate successes, especially with small companies,” said Jeong.


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