KOSDAQ Approaching 800 Points, Will It Cry and Laugh with Bio Stocks Again?

Similar Market Conditions to Two Years Ago When the 900 Level Was Reached
Bio Stocks Led the Rally Then but Faced Accounting Issues and Bubble Concerns
This Year, Bio Stocks Again Lead Gains Amid Fears of Excessive Concentration and Bubble

[Asia Economy Reporter Song Hwajeong] The KOSDAQ is steadily rising, overcoming the shock of the novel coronavirus infection (COVID-19), and is now approaching the 800-point mark. If the KOSDAQ surpasses 800 points, it will reach the levels seen during the bio boom of 2017-2018. At that time, the pharmaceutical and bio sectors were both the main drivers pushing the index up and the main culprits pulling it down. This year, with the stock prices rising due to the strength of bio stocks following the COVID-19 market, attention is focused on whether a similar trend will emerge.

According to the Korea Exchange on the 17th, the KOSDAQ index has risen 15.7% so far this year until the previous day. Compared to the low point recorded on March 19 during the COVID-19-induced crash (based on closing price), it has surged by 80.94%. On the 15th, it recorded 781.29, setting a new yearly high.

As the KOSDAQ approaches the 800-point level, an atmosphere similar to the bull market of 2017-2018 is emerging. In 2017, the KOSDAQ surpassed 800 points for the first time in 10 years, and in early 2018, it reached the 900-point mark. The bio stocks led this rally. Although currently part of the KOSPI, the then KOSDAQ leaders such as Celltrion, Celltrion Healthcare, SillaJen, and TissueGene were the main contributors to the stock price rise. As of January 29, 2018, when the KOSDAQ recorded its highest point in three years, seven out of the top 10 companies by market capitalization were bio stocks. Celltrion rose 105% throughout 2017, and Celltrion Healthcare, which followed as the KOSDAQ leader, increased by 116%.

This year shows a similar atmosphere. Bio stocks have attracted attention due to COVID-19, pushing the index higher. Diagnostic kit-related stocks among bio stocks surged first, followed by vaccine and therapeutic development issues, which gave them wings. Celltrion Healthcare has risen 93% this year, and Celltrion Pharm has surged over 230%. Seegene and Alteogen, which entered the top 5 by market capitalization riding the COVID-19 wave, surged 465% and 329%, respectively. The top five by market capitalization are all pharmaceutical and bio stocks.

As the KOSDAQ's strength continues due to the rise of bio stocks, concerns about a bubble in bio stocks are gradually expanding. Economist Lee Jong-woo said, "Looking at the entire KOSDAQ market, the recent rise can be seen as a recovery from previous stagnation, so the current increase is not problematic," but added, "However, excessive concentration in bio stocks is a cause for concern." He pointed out, "It is true that there is a bubble in bio stocks. With global pharmaceutical companies rushing to develop vaccines and therapeutics, it is unlikely that domestic companies will be the first to succeed in developing therapeutics and vaccines to gain a competitive edge. Some companies seem to be creating hype around therapeutic development to raise stock prices and secure funding."

The similarity of the current situation to 2017-2018 adds weight to these concerns. In early 2018, the KOSDAQ started with hope by surpassing 900 points, but later faced accounting issues and bubble concerns due to controversies over R&D asset processing by bio companies, ultimately failing to maintain the 700-point level and ending 2018 at 675.65 points, more than 27% below the January peak.

However, the proportion of bio stocks in the KOSDAQ market capitalization is still lower than in 2018. At the 2018 peak, the KOSDAQ150 Healthcare index accounted for 31% of the total, but currently, it is around 19%.

The strength of bio stocks is expected to continue for the time being. Researcher Lee Myung-seon of Shin Young Securities said, "The pharmaceutical and bio sector continues to experience liquidity-driven events such as the listing of SK Biopharm and successive decisions on free capital increases, which are adding liquidity, so the current price trend is expected to continue." He added, "Moreover, with government support policies for COVID-19 therapeutics and vaccine development, the implementation of non-face-to-face medical services, and the upcoming enforcement of the Advanced Regenerative Bio Act in August, related companies are expected to benefit from policy support." He also noted, "The second-quarter earnings of pharmaceutical and bio companies, to be announced from the end of July, are expected to surpass the strong first-quarter results despite the prolonged COVID-19 situation."

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