KOSDAQ Surges Over 61 Times PER... Revival or Bubble?

PER Hits Highest Level in 6 Years, Unprecedented Interest Focused on Pharmaceutical and Bio Sectors
Trading Volume Often Surpasses KOSPI
Concerns Over Damage if COVID-19 Economic Recovery Falters

[Asia Economy Reporter Minwoo Lee] The average price-to-earnings ratio (PER) of the KOSDAQ market has reached its highest level in six years, sparking growing controversy over a potential 'bubble.' While expectations are rising that a renaissance centered on the pharmaceutical and bio sectors has arrived, experts simultaneously warn against excessive optimism, noting that this phenomenon is largely due to an influx of excessive liquidity.

According to the Korea Exchange on the 17th, the average PER of the KOSDAQ market stood at 61.8 times as of the previous day. This is the highest since the 248 times recorded on March 21, 2014. Compared to the beginning of the year (January 2) at 48.7 times, it has increased by 27%, and compared to the year's lowest point of 30 times (March 19), it has more than doubled by 106%. This is a significant difference compared to the Nasdaq PER of around 47 times and the KOSPI PER of about 25 times. PER is calculated by dividing the stock price by net earnings and indicates the appropriateness of the stock price. Generally, in the securities industry, a PER exceeding 20 times is considered overvalued.

In particular, the PER of the pharmaceutical and bio sectors was notably high. As of the previous day, the KOSDAQ pharmaceutical sector PER recorded 347.7 times. This far exceeded not only the KOSDAQ large-cap stocks (53.6 times) but also sectors benefiting from the untact (contactless) trend such as software (49.3 times), internet (34 times), digital content (29.8 times), and telecommunications equipment (72.7 times). Although it fell to 69.7 times on March 19, when fears over the spread of COVID-19 peaked, the stock prices of related companies surged sharply to around 350 times due to expectations for COVID-19 treatments and vaccine development.

With ultra-low interest rates driving market funds into the stock market, excessive liquidity was supplied, and the stock-buying enthusiasm of individual investors, known as the 'Donghak Ant Movement,' shifted toward the pharmaceutical and bio sectors, leading to an increase in overvalued sectors. As of the close on the 16th, the total market capitalization of KOSDAQ was 288.0545 trillion won. This represents an 83.4% increase compared to the annual low of 157.265 trillion won on March 19. During the same period, the KOSPI market capitalization increased by only 50.5%, from 982.1697 trillion won to 1,478.3076 trillion won.

Trading volume has even frequently surpassed that of the KOSPI market. As of the 14th, the KOSDAQ trading volume was 12.2799 trillion won, exceeding the KOSPI trading volume of 11.6334 trillion won by 646.5 billion won. Considering that the market capitalization differs by about five times, this indicates growing interest in the KOSDAQ market.

Even considering that the KOSDAQ market is characterized by high earnings volatility and is valued for its growth potential, recent stock price increases have raised concerns about a 'bubble.' Kim Young-ik, an adjunct professor at Sogang University Graduate School of Economics, pointed out, "Expectations that the economic recession caused by COVID-19 will recover and companies will achieve strong earnings have driven funds not only from deposits but also from the real estate market, which has been blocked by various regulations, into the stock market. Since forecasts suggest that economic growth rates in various countries will fall below potential growth rates, overly optimistic projections should be avoided. If concerns about sluggish economic recovery become reality, the shock to individual investors will be even greater."

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