[On-site Snapshot] Infectious Diseases and Theme Stocks

[Asia Economy Reporter Song Hwajeong] The novel coronavirus infection (Wuhan pneumonia) is causing global turmoil. The death toll in China has surpassed 500, and the cumulative confirmed cases are approaching 27,000. In South Korea, the number of confirmed cases has risen to 23. The fear of the epidemic has not spared the stock market either. As the novel coronavirus began spreading worldwide, global stock markets all experienced declines. The Chinese stock market, which reopened after the Chunje (Lunar New Year) holiday, plummeted by 8%.

Another notable point in the stock market after the epidemic spread is the rise of theme stocks. Even in a situation where the stock market is plunging due to concerns about the epidemic, theme stocks have been steadily rising. With most stocks looking pale due to the epidemic, attention inevitably focuses on theme stocks that have been surging day after day. As a result, investors trying to ride the surprise surge of theme stocks have also emerged.

Whenever an epidemic occurs, mask stocks, vaccine stocks, and diagnostic stocks are grouped as related theme stocks. The same was true during Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS). The reason to be cautious about theme stocks that surge during such specific periods is that the stock prices rise sharply based on vague assumptions of relevance without confirmed connections, ignoring the company’s performance or financial condition?what is called a 'blind surge.' Generally, these theme stocks experience a sudden surge but then quickly fall once the situation calms down or it is revealed that there is no actual relation. Some SARS theme stocks were even delisted afterward. It is not uncommon for major shareholders or management to sell large amounts of shares during the price surge. Ultimately, only investors bear the losses.

Earlier, the Korea Exchange Market Surveillance Committee issued investment warnings on some stocks whose prices surged rapidly due to cyber rumors and mass SMS related to the novel coronavirus, raising concerns about investor damage. They also began focused monitoring of the possibility of artificial price manipulation by some speculative forces. The average stock price increase of the 16 stocks on which the exchange took market alert measures from January 20 to 29 reached a staggering 65.83%. The most increased stock surged by more than 120%.

The surge of theme stocks amid a weak stock market can be a sweet temptation. However, it should not be forgotten that this sweet temptation can cause enormous damage. This is why wiser investment decisions are required these days, when the epidemic has created uncertainty.

This content was produced with the assistance of AI translation services.