In a "bull market" where the KOSPI climbed nearly 20% in a month and, for the first time ever, broke through the 4,000 mark, market alerts (investment caution and risk) imposed on stocks that surged in a short time also rose sharply. Some small and mid caps overheated as individual investors crowded in.
According to the Korea Exchange (KRX) on the 27th, from September to the 24th of this month, the Market Surveillance Committee designated investment caution and investment risk stocks 51 times and 3 times, respectively, for a total of 54 cases on the KOSPI and KOSDAQ markets. That compared with 32 in the same period last year, up 1.7 times from a year earlier. It was also 17 more than the previous two months (July–August), when there were 37.
A market alert is a system in which the exchange flags stocks whose prices swing abnormally, warning of heightened speculative or unfair trading risk. Once a stock is put under investment caution, margin purchases are blocked and credit trading is restricted. If the price keeps rising afterward, it is designated as investment risk and trading is suspended for one day.
Most alerted stocks are small and mid caps with limited trading volume that are driven mainly by individual flows. In fact, only a little over 10 KOSPI names received investment caution designations, including Kolon Mobility Group, SNT Holdings, Doosan2PB (preferred), TongyangP (preferred), and DoosanP (preferred), while about 40 KOSDAQ names did, including ROKIT Healthcare, Viol, L&C BIO, Infovine, HYULIM Robot, and SAMG Entertainment.
Since September this year through the 27th, the KOSPI and KOSDAQ indexes rose 26.89% and 13.28%, respectively. Foreigners and institutions were net buyers of about 17 trillion won, driving the indexes higher. Individuals were net sellers of 1.72982 trillion won, taking profits.
As individual flows left large caps, they appear to have piled into overheated names. For example, individuals were net buyers of L&C BIO, which drew attention with its skin booster "Ritwo," to the tune of 52.4 billion won since September. L&C BIO jumped 120% from 29,400 won in early September to 64,700 won on the 15th of the same month, leading to an investment caution designation, but the stock then plunged 23% to 49,750 won on the 24th of this month.
In the same period, individuals were net sellers of 1.22672 trillion won and 797.9 billion won, respectively, in blue chips Samsung Electronics and SK hynix.
Not all individual investors acted that way, but some likely focused on short-term trading in theme stocks. While foreign money concentrated in large caps and lifted the overall indexes, individual money with relatively shorter holding periods flocked to small and mid caps.
Stocks crowded by individual money whipsawed, creating an inevitable gap for individual investors between index gains and perceived returns. It is necessary to be mindful of short-term trading risks.
A Korea Exchange (KRX) official said, "Since April, stocks tied to new government policies, such as robot names, have been surging and plunging, and this impact has continued recently and become larger," adding, "In particular, designations (of investment alerts) have increased mainly for stocks with small market capitalization and high volatility."