Rate hike to push up small-cap shares

A trader works on the floor of a dealing room at a branch of Hana Bank in Seoul, Sept. 29. Korea Times file

By Lee Kyung-min

Investors seeking greater per-share profit are expected to increase their holdings of small- and mid-cap stocks in anticipation of growth momentum to be backed by an expected drawdown in monetary policy amid a gradual economic recovery.

Behind the judgement is that many investors facing tightening borrowing conditions will be more inclined to choose shares of small and medium-sized companies that have reported double-digit profit increases over the past 10 months, compared to larger ones that registered only about 1 percent growth in earnings over the same period. Market consensus is that the Bank of Korea will raise its key rate this month.

Korea Exchange (KRX) said the benchmark KOSPI index rose 5.07 percent from Jan. 4 to Oct. 1 The top 100 large-cap stocks rose only 1.61 percent during the same period, while mid-cap shares, ranging from the 101st to 300th in rank, rose 17.74 percent. Small-cap stocks, or those in the 301st rank or lower, jumped 22.7 percent.

The lackluster performance of the top 100 shares is based on the sharp decrease in terms of their value. Samsung Electronics slumped 9.63 percent during the given period, and SK hynix shares dropped 15.61 percent. Celltrion fell 30.92 percent, followed by LG Household & Health Care (down 17.84 percent), SK Biopharm (down 40.24 percent) and NCSOFT (down 36.09 percent).

By contrast, their small and mid-sized counterparts soared, including Ilsung Engineering & Construction which surged 478.95 percent.

The trend of small shares outperforming their large counterparts was evident especially in the tech-heavy Kosdaq market. While the Kosdaq index inched up 1.53 percent for the first nine months of this year, medium and small shares rose a respective 3.7 percent and 10.63 percent compared to the top 100 Kosdaq shares that sank 2.49 percent.

Analysts view the smaller shares outshining the top 100 shares in both the KOSPI and Kosdaq markets as a result of investors dumping large shares in pursuit of immediate and hefty returns after losing patience with their months-long sluggish performance this year.

“Large-cap shares had already risen, a reason their capacity for further gains is limited, compounded by weakening upward momentum due to regulatory issues concerning large platform companies,” KB Securities said in a report. “Small shares by contrast remain relatively free of the regulatory hurdles, and therefore higher in their growth potential and expected revenue.”