Theme-driven stock frenzy dominates Korean market in 2023

Back in April, an office worker who preferred to be known only by her surname Ham, saw a screenshot uploaded on the internet by a person who claimed to have made a 4.6 billion won ($3.5 million) profit from an initial investment of 230 million won in EcoPro, a battery materials producer.

"That was a staggering 2,000 percent profit. In less than two years, he became a millionaire. This inspired me to start exploring theme-driven stocks," Ham told The Korea Times.

"It was a very bold decision, and I admired his courage to take such a step. I realized that approaching the domestic stock market with an eye on trends and themes can be more effective than just focusing on financial performance," she said.

This year, the local stock market went on a rollercoaster ride fueled by a frenzy over theme-based stocks. Buoyed by retail investors seeking rapid gains, stock prices surged and then dropped rapidly, resulting in substantial losses.

This also led to a marked increase in the number of stocks that received investment warnings.

According to the Korea Exchange, the number of stocks that received investment warnings this year reached 249 as of Friday, up 74 percent compared to 2022. The bourse operator issues warnings for stocks showing risks of unfair trading practices or experiencing abnormally sharp price increases.

April saw investment warnings issued to 35 stocks, which was the highest this year, followed by 29 in August, and 25 in March.

During March and April, secondary battery-related stocks such as EcoPro and Kumyang increased market volatility. This was influenced by optimistic stock market predictions made by YouTube influencers.

According to the Bloomberg World Large & Mid Cap Price Return Index, EcoPro shares reported the highest yield among 2,576 listed stocks since the beginning of this year, surging over 570 percent as of Friday. Close behind, Kumyang shares displayed the second-highest growth rate of nearly 367 percent.

Stock prices displayed marked volatility again in August following an announcement by a domestic research center on the development of LK-99, a revolutionary superconductor that allegedly operates at room temperature. Related stocks experienced a sharp decline after it was revealed that the reported development was false.

Politically-themed stocks gained momentum in December.

For example, the share price of food manufacturing conglomerate Daesang Group surged 572 percent in just a month after then-Justice Minister Han Dong-hoon and actor Lee Jung-jae were spotted having dinner together. The two are high school alumni, and Lee has been dating Daesang's heiress Lim Se-ryung for years.

But analysts voiced concerns over the investment frenzy over certain stocks based on market sentiment rather than fundamentals.

"Predicting the market downturns of such stocks accurately is difficult, and this leads to rapid and substantial financial losses," an official at a local securities firm said.

What is more concerning is that retail investors with limited capital are borrowing money to invest in volatile stocks based largely on rumors and unconfirmed information.

This month, the domestic stock market is witnessing a resurgence of such investment patterns, driven by expectations that high interest rates will drop.

The outstanding balance of margin loans, or the total amount of money that investors borrowed from a brokerage or bank to invest in stocks, escalated to 17.5 trillion won in December, increasing by 1 trillion won in just two months.

Analysts urged investors to exercise caution in a market that remains red hot.

"There is a risk of increased volatility as global stock markets are currently in a state of extreme overheating," Daishin Securities analyst Lee Kyoung-min said. "In such a scenario, it is crucial to practice short-term risk management, especially when the KOSPI index surpasses the 2,600 level."