Moving Toward ‘Long-Term Investment' from ‘Short-Term Momentum'
Moving Toward ‘Long-Term Investment' from ‘Short-Term Momentum'
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  • 승인 2005.02.01 12:01
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Foreign investment rise contributes to 'value-investing' in the KOSDAQ market Unlike institutional and individual investors who have shunned the KOSDAQ market since its collapse in 2000, foreign investors have continuously increased their market share in the tech-heavy bourse that opened in 1996. Last year, in particular, foreign investors' net purchase of KOSDAQ shares accounted 1.6598 trillion won, the greatest amount in its history. As of January 19, foreign investment accounted for about 14.4% of the total capitalization on the KOSDAQ. Nevertheless, the foreign stake in the market is one of the highest on record when one takes into account the fact that the share held by overseas investors fell 4.9% due to the delisting of 'Auction' in early October last year. In addition, foreign investors have been intensively buying shares related to the internet businesses, cell phone parts, LCDs and semiconductor equipment for purposes of mid-to long-term investment. As a result, it is anticipated that the high returns made by those shares based on strong business performance will help long-term 'value-investing' to take a firm hold in the KOSDAQ market. Valuations Still Attract Investor Interest Despite a recent rally, the KOSDAQ market is still attractive in terms of valuation. The stock price premiums set in the market are at their historical lows as the price bubble that previously obtained has continuously been deflated. Normally, shares of small and mid-sized tech companies are traded with higher premiums than large manufacturing companies due to their high growth potential. However, most of these premiums have disappeared. Even though the price earnings ratio (P/E) for the sixty member companies of the Samsung Securities' 'Universe' on the KOSDAQ market currently stands at 8.2, with their shares being traded at an 8% higher price than their counterparts (135 companies) on the KOSPI of the Korea Stock Exchange with an average price earnings ratio of 7.6, the valuation gap that existed between the two has been greatly narrowed. Moreover, as it is expected that the 'profit momentum' of KOSDAQ-listed companies will be markedly stronger this year than among shares on the KOSPI, the KOSDAQ market provides a more advantageous environment for investors in terms of valuation. 'Value-investing' is forecast to take a firm hold together with the strengthening of demand base for mid-and long-term investing The trend toward 'value-investing' mode is anticipated to take root on the KOSDAQ, too. The strengthening of foreign investors' presence in the domestic stock market and the rise in the sales of investment funds through installment deposits as well as the planned adoption of a new pension system to benefit those in small businesses with less than five employees have all contributed to this new trend. In fact, in line with government policy to revitalize venture businesses, the National Pension Corporation has indicated its intention to increase its share of holdings on the KOSDAQ to 20% of the total value of its stock market investment from the current 10% level. The 'bottom-up' approach to high-tech companies is valid Investor interest in high-tech companies has been maintained in terms of valuation despite the weakening growth momentum in the IT industry. Accordingly, market conditions make it possible to approach the market 'bottom-up' instead of 'top-down'. In other words, finding investments by looking at the financial, management and market strengths and weaknesses of individual companies. The bottom-up approach focuses squarely on the company and gives only secondary regard to industry issues and the overall economy. Investors on the KOSDAQ are thus expected to see make active and differentiated attempts, through a bottom-up approach, to seek a host of companies that have maintained their attractiveness. Even though the momentum for share price increase among large IT companies will be limited until an economic upswing becomes more apparent, a continued interest is expected to be maintained in high-tech shares. IT parts and equipment makers are forecast to benefit from Samsung Electronics' plans to increase investment in infrastructure. A recent announcement by Samsung Electronics to invest 10.27 trillion won in infrastructure development is forecast to act as a catalysis in bringing about a rebound in the share prices of associated companies. The announcement, which came at a time when high-tech shares are forecast to attract greater interest, may have far-reaching effects due to the lessons learned from the past that a leading IT company's investment in infrastructure has triggered increases in investment by rival companies. Against such a background, it is anticipated that stocks of manufacturers of materials, parts and equipment, and whose stock prices are at their historical lows despite a recent rebound, will emerge as leaders in the next cyclical rise of the KOSDAQ. At the same time, investor confidence will be limited by stock price volatility. Possibility of a temporary shock inherent in the process of cooling down an overheated market The technical indicators on the KOSDAQ are showing signs of overheating since its rally began early this year. As of January 19, the investor sentiment and 20-day stock price disparity indices stood at 80 and 113, respectively. In addition, the market demonstrated short-term highs with the index breaking away from the upper limit of the Bollinger bands. The technical burden of overheating not only bolsters the sentiment in favor of price adjustments but also increases the need to make corrections to the rate at which stock prices are moving. As overheating intensifies, pressure to make adjustment can grow in the short-term. In the process of dampening overheating as shown by technical indicators, the possibility of a temporary shock is inherent on the KOSDAQ. Top listed companies delisting from the KOSDAQ In addition, there is the growing risk of deepening volatility on the KOSDAQ in structural sense. This is because major players in the market, such as Korea Telecom Freetel and Kangwon Land, have chosen to delist their shares, one after another as the slump on the stock market becomes protracted. The KOSDAQ market shows characteristics of high volatility due to a startlingly high portion of individual investors trading for short-term profits. As recently as 2002, the top-ten listed companies on the KOSDAQ accounted for 42% of its total market value. However, their share of total market value has dropped to 21%. In structural terms, the possibility of an increased intra-day volatility due to investor sentiment has also grown. Greater volatility caused by intra-day market psychology The rally on the KOSDAQ that began earlier this year has been driven by individual investors in key investment areas as Wireless Broadband (Wi-Bro) services, Digital Multimedia Broadcasting (DMB) and embryonic stem cell research. Individual investors have pushed up the daily trading volume up to 1.5 trillion won from 600 to 700 billion won posted on average late last year. Moreover, prices of stocks in the above mentioned key areas soared rapidly, reminiscent of the stock market frenzy that swept the nation in early 2000. However, the stock market rally can be said to have mainly be due to market psychology rather than improvements in fundamentals as well as supply and demand within the market. As this is the case, intra-day investor sentiment is forecast to have greater influence on the market.

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