Strong foreign appetite sends Kosdaq to a new high

Korea’s tech-heavy stock market Kosdaq rose to a new high in its market capitalization on a strong foreign appetite for Korean biotech firms, experts said Thursday.

According to Korea Exchange, the aggregate market cap of the secondary exchange came in at 216.7 trillion won at Wednesday’s close, the largest ever since its creation in 1996. It was 7.5 percent larger compared to a year earlier. 

The composite Kosdaq index closed at 707.46 points, up 3.7 percent from the previous year.

The combined market cap of the benchmark Kospi and the Kosdaq also rose to 1,516 trillion won, the highest in 13 months.

“A strong buying spree by foreigners after the upgrade in the country’s sovereign credit rating by S&P on Monday and the government’s policies to boost the biotechnology and health industries helped rally bio and pharmaceutical stocks, leading to the largest-ever Kosdaq capitalization,” said the bourse operator in a press release.

The tech market surpassed 100 trillion won for the first time in 2011 and accelerated the growth towards the 200 trillion won mark for the next four years.

The Kosdaq index, which had dipped to below 700 points amid Brexit jitters, has recovered back to the 700 mark on the comeback of foreign investors in July.

Experts say the current rally is likely to continue in the coming months.

“The Kosdaq is being stabilized again as it returned to the lower 700 range,” said Kim Jeong hwan, an analyst at Mirae Asset Daewoo Securities.

“The index has been steadily rising on a weekly basis since August 2015. The question now is when the index will hit 720 points. After that, the Kosdaq will start flying further.”

According to his analysis, the Kosdaq rally is aligned with growing interests in tech stocks across the globe.

“Globally, biotech shares are attracting investors’ attention, as shown in the U.S. tech-based Nasdaq,” said Kim. “Recent rallies of those shares on the Nasdaq are expected to lead to rises in Korean biotech stocks according to past empirical studies.”

On Wednesday, foreign investors snatched up a total of 95.4 billion won worth stocks on Kodaq. Of the total, as much as 62.4 billion won were bio and pharmaceutical shares, Korea Exchange data showed.

“Companies on both the Kospi and Kosdaq are likely to announce better performances in Q2, so there are high expectations for rallies,” said Jung Hun-seok at Korea Investment & Securities. “We are saying that the companies producing parts and IT solutions for heavy industries are going to make a turnaround, so the stock market indexes are likely to remain bullish until the third quarter.”

However, the increasing tension between Korea and China over deployment of the THAAD missile defense system can weigh down on some stocks with heavy China exposure, he added.

“Companies exposed to the Chinese market may take a blow,” he said. “We are recommending investors to be conservative about those firms.”

The strengthening Korean won against the U.S. dollar won‘t be a major factor threatening the ongoing summer rally, at least for a while, another analyst said.

“This summer, in spite of the strong won, foreigners are not expected to stop their buying of Korean stocks,” said Lee Sang-jae of Eugene Investment & Securities.

“Their preference for risky assets over the weakening dollar is considered more important in their investment decisions at least until September when the OPEC countries will decide on freezing oil production.”

By Song Su-hyun  (song@heraldcorp.com)