The 'Feast of Junk Stocks' Blooming in the Market Crash

Economic Shock Following Price Shock
Major Blue-Chip Stocks Plummet One After Another in Crash
Short-Term Supply-Demand Concentration Drives Surge in Small and Mid-Cap Stocks

[Asia Economy Reporter Hwang Junho] Following the 'price shock,' the 'economic shock' impact from the U.S. Federal Reserve's interest rate hikes has hit the stock market, causing a sharp decline in large-cap blue-chip stocks, while some small- and mid-cap stocks have surged. This phenomenon is the result of a short-term concentration of supply and demand, requiring investors to exercise caution.

According to the Korea Exchange on the 17th, from the 13th to the 15th, when the KOSPI plunged to the 2400 level due to rising prices, only 34 out of 942 KOSPI-listed stocks showed an upward trend. Among these, only 3 stocks recorded double-digit gains. Even when extending the investigation period to the 16th, which saw a brief rally following a significant 75 basis point interest rate hike in the U.S., only about 5 stocks showed double-digit increases. On the KOSDAQ, from the 13th to the 16th, 98 out of 1,557 stocks rose, with only 28 stocks recording double-digit gains.

The common characteristic of the stocks showing red lights amid the green is that they are small- and mid-cap stocks. Another shared trait is that the reasons for their price increases mostly stem from short-term positive factors. Representative examples include stocks that rose due to increased earnings expectations from rising grain prices (Sinsong Holdings, Sempio), and stocks that gained on hopes of increased trading activity following a free share issuance (Gonggu Woman, Chosun Wire). Companies holding convertible bonds (Canaria Bio) and stocks that surged as they were grouped with grain stocks following news of a merger with another company (Hyundai Feed), such as Adbiotech, also stand out.

Since the stock prices surged sharply due to short-term positive factors, there is a risk that the decline could also be significant going forward. For example, TS Investment, the second-largest shareholder of Gonggu Woman, which hit the daily upper limit for two consecutive days on the 14th and 15th due to a free share issuance, dropped 21.59% in a single day on the 16th.

A financial investment industry official advised, "As market volatility increases, demand to recover losses seems to have surged," but cautioned, "Since these are not positive factors that can affect corporate value or earnings improvement, investors need to be careful."