Kosdaq yet to regain old glories

At the end of 1999, the CEO of a Kosdaq-listed company held a year-end party in the posh neighborhood of Gangnam - and spent 300 million won ($266,730) in a single night.

Kosdaq-listed companies were partying all the time in 1999 - and toasting to the day they would take over the headquarters of Korea’s biggest business lobby, the Federation of Korean Industries (FKI), dominated for decades by companies listed on the stalwart Kospi exchange, Seoul’s main bourse.

Start-ups were getting huge investments thanks to the U.S.-ignited dot-com boom. The rest of the country was still struggling to emerge from the 1997 Asian financial crisis.

But the tech-heavy secondary market was on a seemingly unstoppable bull rally with high hopes of a new-tech led future.

But in March 2000, after hitting its all-time high of 2,834.4, the tech bubble burst and the market plummeted as quickly as it rose. In just nine months the Kosdaq lost 81 percent to end the year at 525.8.

Seventeen years has passed and the Kosdaq is far from recovering its past glories.

In fact, while the Kospi has enjoyed a bullish rally that has seen it climb 23 percent from Jan. 1 to Oct. 27, the Kosdaq has risen only by 9 percent.

In fact, most of that rise has come this month.

One of the biggest problems the market faces is the great divide between popular companies and unpopular.

Of the 13.6 trillion won invested on the Kosdaq this month, nearly half, or 6 trillion won, was invested in the exchange’s top three companies by market capitalization.

Two are sister biopharmaceutical companies: Celltrion and Celltrion Healthcare.

IT and bio shares account for the majority of the market capitalization on the Kosdaq market. IT shares’ market capitalization accounts for 29 percent while bio shares take up 41 percent.

“Aside from IT or bio shares, there’s not much diversity of energy, finance and consumer goods companies on the Kosdaq,” said Yoon Jeong-seon, an analyst at KB Securities. “Investments concentrate heavily on so-called ‘good shares’ [on the Kosdaq] compared to the Kospi.”

But even among popular biopharmaceutical shares on the Kosdaq, not all are winning investments.

Mr. Kim, a 45 year-old investor, started investing in a Kosdaq-listed biopharmaceutical company two years ago in hopes of riding the popular trend. However, the value of the shares he invested in is now one-third of his original purchase price.

“I’m just keeping the shares as I’ve already missed my opportunity to cut my losses and sell,” said Kim.

Another major problem with companies traded on the Kosdaq is a lack of information.

Many companies fail to provide past performance data that would help investors better understand future prospects.

“The reasons smaller companies are considered riskier than their larger counterparts is because there’s either a lack of transparency in information or a complete absence of information,” said Kim Do-seong, a professor of business management at Sogang University. “On the Kosdaq market, it is important [for investors] to have information not only on the technology that a company has but also on information that would help show whether the company can make a profit from the technology. If not it would be an incomplete investment.”

Experts say it is important for the Kosdaq operator to list companies with good track records.

BY LEE SAENURI [lee.hojeong@joongang.co.kr]