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Kosdaq breaks 800 and rally may get stronger

Nov 25,2017
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A board at KEB Hana Bank’s headquarters shows the Kosdaq starting off strongly on Friday, easily reaching 800. But by the end of the day the market retreated. [YONHAP]
The Kosdaq surpassed the psychologically significant 800 level during intraday trading for the first time in 10 years Friday, buoyed by expectations of positive earnings and a government push to bolster the market.

The drastic upturn generated projections of further gains - and worries about a stock bubble reminiscent of the dot-com bubble in the late 1990s and early 2000s.

The Kosdaq hit 801.04 at 9:29 a.m. on a buying spree by foreign and institutional investors, though it retreated to close at 792.74, down 0.51 percent from the previous trading day.

Its intraday peak was the highest since November 2007 before the country felt the impact of the U.S.-led global financial meltdown.

The Kosdaq’s rally started this month and the tech-heavy index has seen a 15 percent increase compared to October following years of tepid growth, according to data from Korea Exchange.

The major driver of the surge was strong performances by and good news about biopharmaceutical companies including Celltrion, SillaJen and TissueGene, all top stocks in terms of market capitalization.

All three experienced losses Friday as investors worried about overly heady rises.

Still, some analysts think even better days are ahead for the Kosdaq.

“The 1,000 level is not impossible for the Kosdaq in 2018,” said Im Sang-guk, an analyst at KB Securities.

“A number of favorable conditions have been formed, from policies, earnings, supply and demand and changes in the global economic landscape,” Im said.

Of those factors, analysts said policy support is playing a central role in pushing up the Kosdaq.

The financial authorities unveiled tax breaks and incentives for both Kosdaq-listed companies and investors. The Moon Jae-in government is also expected to come up with measures aimed at encouraging pension funds to invest more in Kosdaq stocks.

With the details of the measure due to be released next month, the Finance Ministry said that they could include creating a new benchmark index that includes major Kosdaq stocks as well as those on the main Kospi bourse. The ministry and the Financial Services Commission are mulling giving extra credit to pension funds investing in Kosdaq?listed companies when they assess their asset management performances.

A diplomatic breakthrough with China also boosted small and mid-sized retail and entertainment stocks on the index because Beijing will remove restrictions on tourism to Korea and exports from the country.

But others worry that the expansion is too fast and overly concentrated on a handful of stocks.

“It is true that the Kosdaq is being driven by policy support and ideal supply and demand conditions,” said Kang Jae-hyun, an analyst at HI Investment and Securities.

“But the growth pace appears too fast even when considering broader economic conditions and earnings momentum.”

When developed countries besides the United States tighten monetary policy in the second half of 2018, the bullish momentum could disappear, Kang said.

“We expect that the global economy will slow down in the second half of 2018 because that is when other countries will start tightening their economies,” he said.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]