[Inside Chodong] Theme Stock Frenzy... Beware of Herd Trading

Theme Stock Frenzy Accelerates:
From Secondary Batteries to Quantum Computing
Unverified Information Fuels Risky Debt-Financed Investments

The upper range of the stock index is capped, and the rally in secondary battery stocks has also been halted, leading to a continued theme stock market. While there have been periods when theme stocks dominated, the theme stock market seen this month is different in that it moves much faster and is more organized than in the past.

Although regulatory authorities have expressed concerns about the concentration in theme stocks and have strengthened monitoring, the theme stock frenzy shows little sign of abating. Following superconductors, the Maxine theme emerged, and quantum-related themes also stirred the market. While creating a tight net to prevent innocent victims from being issued, efforts to strengthen investor education and provide accurate information to avoid falling into the "dangerous temptation" must continue. After a theme stock frenzy, many investor accounts often turn into "empty shells."

Looking at individual trading trends up to the 23rd of this month, superconductor theme stocks such as Sinseong Delta Tech, Seonam, and Power Logics ranked high in net purchases. The average purchase price of Sinseong Delta Tech is 37,800 KRW, with an evaluation profit rate exceeding 30%. In contrast, investors in Seonam and Power Logics recorded average loss rates of 44% and 15%, respectively. From the 16th to the 23rd, many superconductor theme stocks such as Power Logics, Seonam, and Mobis appeared among the top declining stocks in the KOSDAQ market. If investors borrowed money to invest in theme stocks aiming for short-term high returns, they could potentially lose their entire principal. Kim So-young, Vice Chairman of the Financial Services Commission, pointed out, "It is not a problem if stocks that should rise go up, but investor losses caused by unfair trading or market disruption are problematic."

Regulatory authorities judged that unverified information spreading indiscriminately through leading chat rooms and SNS also influences the theme stock frenzy. As investment overheats, not only leading chat room scams baiting high returns but also pyramid schemes and multi-level investment frauds are frequently occurring. The Financial Supervisory Service has decided to operate a joint crackdown team with the National Police Agency’s National Investigation Headquarters (NIS). They plan to strongly respond to illegal activities such as unfair trading and investment fraud through illegal leading chat rooms.

Individual investors, watching the rapid rise of secondary battery-related stocks and theme stocks, are rushing into the stock market late by borrowing money. The scale of credit loans, which was around 16 trillion KRW at the beginning of this year, has exceeded 20 trillion KRW, indicating overheating. As stocks that rise more than 100% in three days continue to appear riding the theme stock fever, the number of individual investors borrowing money to invest is increasing. Regulatory authorities have expressed concern over the rapid increase in credit loan size following the theme stock overheating. This is because the number of investors suffering large losses after investing in theme stocks with repeated sharp fluctuations may increase.

Measures are also being prepared to reduce the side effects of debt-financed investment. Earlier this month, Lee Bok-hyun, Governor of the Financial Supervisory Service, ordered, "Please manage so that securities companies do not encourage debt-financed investment riding the theme stock fever." Recently, securities companies have suspended margin trading or raised margin rates for stocks included in theme stocks.

While it is important to introduce various preventive measures before the problem worsens, it is difficult to prevent the damage caused by theme stock investment without concurrent investor education. As trading volume increased due to the theme stock frenzy, securities companies’ commission income also increased. However, securities research centers often stop analyzing stocks with increased price volatility. There is a lack of effort to actively provide facts that can be referenced for investment. It is problematic that many domestic securities companies ignore stocks with a market capitalization exceeding 1 trillion KRW and daily trading volume exceeding several hundred billion KRW. It is time not only to point out the absence of "sell" recommendation reports but also to demand efforts to resolve information asymmetry.

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