Photographer: SeongJoon Cho/Bloomberg

South Korea Halts Small-Cap Equity Trading After Index Sinks 8%

  • Kosdaq Index pares losses after trading halted for 20 minutes
  • Small-cap measure jumped last year on biotech earnings bets

Trading in South Korea’s Kosdaq exchange for smaller stocks was temporarily halted after the benchmark gauge plunged more than 8 percent on concern valuations were excessive relative to earnings prospects.

Trading was suspended for 20 minutes at 11:55 a.m. in Seoul after the measure dropped 8.2 percent. The index pared declines to 6.1 percent at the close. Celltrion Inc. was the biggest drag on the small-cap measure after the stock almost tripled in the past 12 months. The Kospi gauge of larger companies closed at its lowest level since August.

The Kosdaq index of more than 1,100 companies jumped 26 percent to outperform the large-cap gauge last year as investors piled into biotech shares and other smaller companies in search of earnings growth as smokestack industries stagnated. Celltrion, which developed an arthritis medicine, trades at 42 times projected 12 month profits, four times the Kospi’s 10.5 times.

Investors are selling small-cap stocks as they look for havens amid the global market turmoil, said Choi Kwang Kook, a senior fund manager at Assetplus Investment Management in Seoul.

World equities entered a bear market on Thursday amid concern over the strength of the global economy, while the yen and gold rallied. Korean markets were closed for the first three days of this week for holidays. Today’s 8.2 percent intraday decline by the Kosdaq is the biggest since December 2011.

Biggest Losers

Celltrion slid 12 percent, paring its gain this year to 18 percent. The stock was among the 10 biggest gainers in Asia in 2015. Kakao Corp. tumbled 7.9 percent, the second-biggest drag on the index. Medy-Tox Inc., which trades at 40 times projected earnings, sank a record 13 percent.

Under the nation’s exchange rules, a loss of 15 percent by the Kosdaq would trigger another halt of 20 minutes, while a drop of 20 percent would stop trading for the rest of the day.

Investors are shifting funds to cheaper large-cap stocks, said Choi Hyun, head of equity in Baring Asset Management Korea Ltd in Seoul. "For investors, Kosdaq market would not be an interesting market in the future due to high valuations."

Hyundai Motor Co., the third-largest Korean company by market value, jumped 4.6 percent in its biggest gain since August. Kia Motors Corp. surged 6.4 percent. The two stocks trade at less than 7 times estimated earnings.

A strengthening yen versus the won will benefit Korean exporters at the expense of their Japanese rivals, according to Park Kyung Gu, analyst at Samsung Securities Co. The yen has jumped 3.8 percent this week versus the dollar, a second straight weekly gain.

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