Ants Enchanted by 'Ttattabl' Can't Stop Crying [Inside Chodong]

Individual Investors in LK Chem Suffer 57% Loss in Seven Trading Days
Regulatory Authorities Move to Improve System, but Concerns Over Side Effects Remain
Institutions Participating in Demand Forecasts Need to Take Responsibility

More individual investors are shedding tears of regret after being lured by the sharp surge in stock prices on the first day of newly listed companies. Winners, which newly entered the KOSDAQ market on the 24th of last month, recorded a 'ttattabl' (a 300% increase compared to the public offering price) on its first day of listing. This is the first time in six months since TDS Pharm recorded a ttattabl when it was listed on the KOSDAQ market on August 21 last year.

A sharp rise in rookie stock prices on the first day of listing helps attract market funds to the initial public offering (IPO) market because the expected return on public offering investments increases. However, the recent surge in rookie stocks has been acting as the main culprit eating away at individual investors' accounts.

Many individual investors were caught holding stocks of LK Chem, which entered the KOSDAQ market the day after Winners was listed. LK Chem, which was listed at a public offering price of 21,000 KRW, rose to 77,800 KRW on the first day but closed at 58,800 KRW. Since it surged 180% compared to the public offering price based on the closing price, public offering investors were beaming with joy. Individual buying demand poured in after seeing the Winners case the day before, but LK Chem closed trading down 24.4% from its peak. The downward trend continued afterward, and the price fell to 25,400 KRW after seven trading days.

During the eight trading days since LK Chem started trading on the KOSDAQ market, individuals recorded a cumulative net purchase of 56.7 billion KRW. Most individuals concentrated their stock purchases on the first and second days of listing. The average purchase price was 58,751 KRW, and the current stock price evaluation loss rate reaches 57%. The loss amount alone amounts to 32.2 billion KRW. On the other hand, institutions sold stocks worth 55.8 billion KRW over two days on the 25th and 26th of last month, recording an average return of 151%. Excluding the 290,000 shares sold on the market by the investment association that invested in LK Chem before listing, some of the public offering shares were offloaded to individuals by institutions participating in the demand forecast, pocketing a considerable margin.

Looking at individual investment results, large-scale evaluation losses have been recorded by investing in newly listed stocks even after LK Chem. Daejin Advanced Materials was listed on the 6th at a public offering price of 9,000 KRW. Individuals net purchased stocks worth 58.2 billion KRW over two days, with an evaluation loss rate of 31.6%. Daejin Advanced Materials formed an opening price of 17,830 KRW and closed trading at 12,110 KRW. It fell 9.5% the next day, dropping near the public offering price.

The regulatory authorities have begun preparing measures to reduce side effects caused by abnormal overheating phenomena in the early stages of listing. They are promoting the introduction of a preferential allocation system for mandatory holding commitments and a cornerstone investment system. The plan is to pre-allocate some public offering shares to institutional investors who promise to hold the shares for a certain period. It is expected to induce the securing of stable mid- to long-term investors.

Institutional investors participating in IPO demand forecasts are opposing, saying that the lower the circulating volume in the early stages of listing, the greater the volatility can be, and the participation rate of institutions in demand forecasts will also decline. The problem is that they only express concerns about side effects but show a passive attitude toward solving the problems currently revealed. Unless institutions that take more than half of the public offering shares take the initiative in a magnanimous manner, side effects will inevitably continue. It is necessary to improve the system so that more institutions propose underwriting prices by establishing strategies to make profits six months to a year after listing. It is also urgent to weed out institutional investors who are not qualified to participate in demand forecasts. There are many cases where institutional investors without the capability to derive appropriate prices propose high underwriting prices aiming only for short-term capital gains.