[KOSDAQ Theme Stock Bubble]② Foreigner Favoritism Undermining KOSDAQ Stability, Institutional Short Selling

Foreigners Account for 63.8% of Net Purchases in Top 3 Market Cap Stocks
Average Daily Short Selling in February: Foreigners 98.2 Billion KRW, Institutions 67.7 Billion KRW

Although the KOSDAQ index has shown stronger performance compared to the KOSPI this year, concerns are emerging that it could be a ticking time bomb due to capital inflows into theme stocks with unstable fundamentals. The rise has been mainly theme-driven, and the addition of short selling by foreign and institutional investors makes the market unstable. Experts point out that for the KOSDAQ index to rise steadily, core sectors such as healthcare, which account for more than 70% of the KOSDAQ market, need to stabilize the market.

According to the Korea Exchange on the 27th, the KOSDAQ index rose 14.66% from the beginning of this year through the 24th, outperforming the KOSPI's 8.37% increase. This contrasts sharply with last year's dismal performance. Last year, while the KOSPI fell 24.89%, the KOSDAQ dropped 34.4%, marking the largest decline since the 2008 global financial crisis. Compared to last year's peak, the KOSPI fell 18.8%, and the KOSDAQ declined 29.4%.

Although the KOSDAQ has recorded a higher rate of increase than the KOSPI this year, there are concerns that the stocks attracting capital inflows are overheated relative to their fundamentals. The stock with the highest increase in the KOSDAQ this year is Konan Technology, considered the leading AI chatbot stock. Konan Technology's stock price surged 422.83% through the 24th of this year. Selvas AI, which rose 342.71%, and Open Edge Technology, which increased 234.01%, are also related to ChatGPT, like Konan Technology.

The problem is that their stock prices have risen too much compared to their corporate value. Konan Technology, the leading AI chatbot stock, has a price-to-earnings ratio (PER) of 244.9 times. This valuation is seven times higher than Tesla’s PER, which is around 30 to 40 times. Konan Technology recorded an operating loss of 4.4 billion KRW last year on an individual basis, turning to a deficit compared to the previous year. Open Edge Technology also recorded an operating loss of 9 billion KRW last year.

Experts point out that for the KOSDAQ to steadily rise without being shaken by themes, the strength of growth stocks, which account for 70% of the KOSDAQ, is essential. In fact, sectors classified as representative growth stocks?healthcare, communication, and IT?make up 70% of the KOSDAQ market. However, the KOSDAQ150 Healthcare Index rose only 3.88% from January 2 to February 24 this year, far below the KOSDAQ’s overall increase of 14.66% during the same period. In particular, stocks such as Celltrion Healthcare (-5.00%), Celltrion Pharm (-13.15%), Alteogen (-0.26%), and Hugel (-1.48%) retreated during this period.

Most Soaring AI Chatbot Leading Stocks Are Operating at a Loss

Meanwhile, foreign investors show favoritism toward specific stocks, and institutions and foreigners respond with short selling, leading to a decline in overall market stability. As of the 24th, the daily short selling trading value on the KOSDAQ reached 231.1 billion KRW. On the 22nd, the daily short selling trading value hit 347.9 billion KRW, marking the highest level in about five years since February 2018. Since February, the daily short selling trading value has consistently exceeded 200 billion KRW, showing a sharp increase. In particular, short selling by foreigners and institutions has concentrated on the KOSDAQ, which has shown a steep rise this year. The average daily short selling trading value by foreigners increased from 49.7 billion KRW last month to 98.2 billion KRW this month, nearly doubling. The average daily short selling trading value by institutions rose from 26.9 billion KRW last month to 67.7 billion KRW, about tripling.

Short selling is considered a kind of 'peak signal,' which raises concerns about short-term overheating in the KOSDAQ market. In fact, the previous record for the highest KOSDAQ short selling trading value was 609.7 billion KRW on February 8, 2008, when the KOSDAQ index was at 861.94 points. By October of the same year, the index had fallen below 650 points, showing a nearly 25% drop in just eight months.

Cho Chang-min, a researcher at Yuanta Securities, said, "Only 27 stocks have risen above the index as of February during the KOSDAQ's rise, which is far below the average of 67 stocks since 2020. This indicates a concentration in specific stocks." He added, "Foreign investors also poured 63.8% of the 1.1 trillion KRW net purchases since the beginning of the year into the top three market capitalization stocks."

Meanwhile, downward pressure on the KOSDAQ is also increasing. Lee Kyung-min, a researcher at Daishin Securities, analyzed, "With the won-dollar exchange rate surpassing 1,300 KRW, the exchange rate has reached a level that burdens foreign investors who have continued buying since the beginning of the year," adding, "There is a growing pressure for foreigners to realize profits."