After Nipah Virus, Fears Rise Over COVID-19 Resurgence in Greater China
Short-Term Overheating Warnings Amid Vaccine and Diagnostic Kit Stock Rally
As fears of infectious diseases intensify, stocks related to vaccines and diagnostic kits have been rallying, triggering investment warnings. Some experts point out that, considering weak earnings and fundamentals, it is time to carefully distinguish between overvalued and sound stocks.
According to the financial investment industry on May 23, a surge of stocks hit the daily limit among domestic COVID-19 theme stocks the previous day. Among COVID-19 vaccine developers, Cellid reached the upper price limit, while Green Life Science, known for its exclusive supply of antibiotic intermediates to Pfizer, also hit the daily limit for two consecutive days. Shinpoong Pharm, despite ongoing owner risk, drew attention as a COVID-19 treatment stock and, along with Genexine, also hit the upper limit. Diagnostic kit stocks such as The BioMed and Medicox also soared to their ceilings.
The driving force behind this theme stock frenzy is concern over the spread of infectious diseases. On May 19, news that Nipah virus infection, with a fatality rate of up to 75%, is in the process of being designated as a first-class infectious disease caused a surge in related stocks. More recently, reports of a resurgence of coronavirus in Greater China have fueled the ongoing rally. Previously, Taiwan's health authorities announced that emergency room visits due to COVID-19 from May 11 to 17 reached 19,097, an 88.2% increase from the previous week (May 4-10). In Hong Kong, the infection rate reportedly hit 13.66%, the highest in a year.
As buying pressure exploded, a series of stocks were flagged with investment warnings. Sugentech and Shinpoong Pharm preferred shares were designated as short-term overheated stocks, while Curatis, which was recently removed from the investment warning list, was listed as a cautionary stock. When a stock is designated as short-term overheated, trading in the regular market is switched to a single-price auction every 30 minutes for three trading days. For stocks under investment warning, direct restrictions are imposed, including a 100% margin requirement and a ban on margin trading.
Accordingly, there are growing calls to avoid indiscriminately joining the rally without examining a company's performance or fundamentals. For example, diagnostic kit maker Sugentech, which hit the upper limit on May 19, saw its revenue plummet by about 90% from 101.4 billion won in 2022 to around 10 billion won last year. Cellid also reached the upper limit that day, but 99.8% of its first-quarter sales (about 1.6 billion won) came from its e-commerce division, which sells food and baking equipment.
An industry insider commented, "Given the frequent theme rotation in the Korean stock market, COVID-19 theme stocks also tend to experience periodic sharp rises and falls. Rather than blindly chasing stocks that surge on clinical trial expectations, it is important to closely examine whether the company actually generates revenue from treatments, vaccines, or similar businesses, and to scrutinize its fundamentals."
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