SEOUL, Jan. 18 (UPI) -- South Korea's technology-packed Kosdaq has long been in the doldrums, with its index sinking to all-time lows throughout the past years.
But the South Korean equivalent of the Nasdaq began rapidly gaining momentum at the turn of the year on the back of strong gains in technology and brokerage issues.
The Kosdaq index has surged by 20 percent for the past two weeks, becoming the best performing market among the world's major equity markets. Buoyed by the tech gains, the country's benchmark Korea Composite Stock Price Index (Kospi) also soared to a nine-month high this week.
The main Kospi index edged down 0.27 percent to end at 920.57 on Tuesday after reaching the highest level since last April at 905.10, but the tech-rich Kosdaq index did not lose momentum, climbing 0.66 percent to 449.02, marking the highest point since early May last year.
Many analysts say the Kosdaq will maintain its strong rally later this year on the back of foreign buying in technology stocks, with South Korea's technology firms reaping more-than-expected profits. They expect the Kosdaq index to reach 480 this year. But some economists warn of overheating of the tech-laden market, citing weak fundamentals of some listed companies.
The Kosdaq, an over-the-counter market modeled after the Nasdaq, was once one of the world's hottest stock markets as it had enjoyed explosive growth thanks to an unprecedented boom in the country's information technology sector.
Since its inception in 1996, the Kosdaq had been used as the main channel of market capitalization for a number of start-up technology ventures. During the boom 1999-2001, private investors flocked to buy shares in the technology start-ups on the Kosdaq market.
But the market has suffered a devastating downward spiral ever since March 2001 in the wake of the bursting of the technology bubble. The market suffered further setbacks in the wake of a series of scandals ranging from accounting frauds to fictional operations, which critically eroded investors' confidence.
Not a few analysts predicted the South Korean secondary stock market would suffer the same fate Neuer Markt, Germany's once booming stock market but died in 2001.
But the tech-laden market dramatically rebounded since the start of this year. Since it opened on Jan. 3 after a three-day holiday, the Kosdaq has kept a strong rally for the past two weeks, excepting just two days.
The Kosdaq has seen its trade volume reaching 1.2 trillion won ($1.1 billion) a day since last Wednesday. Its daily turnover was between 400 billion won ($386 million) to 800 billion won ($773 million) last year. Both domestic institutional and overseas investors are allocating more investments in the Kosdaq market, analysts say.
According to the Korea Stock Exchange, the Kosdaq has been the best performing market so far this year among major global equity markets which belong to the World Federation of Exchanges.
The unexpected rally in the tech-focused market has boosted the country's main bourse's index, which remained in a slump in early days of this year. The Kospi index broke the 900-level on Monday for the first time since the end of April last year, as the brisk corporate outlook for the nation's technology sector boosted investment sentiment.
Economists attribute the booming Kosdaq market to a government package late last month to stimulate venture startup companies.
On Dec. 24, the government unveiled a long-awaited package of measures to prop up the moribund venture industry and revitalize the Kosdaq, calling it a move to foster a "second tech venture boom."
The measures that went into effect this year include tax incentives and financial support to venture businesses and deregulations for venture start-ups to finance capital from the Kosdaq. Under the policy, companies that are newly listed on the Kosdaq companies will be exempt from paying taxes for 30 percent of their income.
The daily limit on share price changes will be upped to 15 percent from the current 12 percent, while shareholders of 5 percent or less will not be required to pay capital gains taxes for shares they sell. The package also calls for establishing a 1 trillion won ($966 million) fund to help venture startups and increase transparency in dealings.
"The KOSDAQ market will become a dedicated bourse for venture startups and smaller companies," said Kim Seok-dong, the financial policy bureau at the Ministry of Finance and Economy.
"The government stimulus package to support venture market has raised expectations for a second boom in the technology sector, which thus boosted the Kosdaq market," said Ryu Yong-seok, an analyst at Hyundai Securities.
The tech-heavy Kosdaq market was also greatly boosted by better-than-expected earnings by the country's technology giant, Samsung Electronic Co., the world's top memory chipmaker and the world's second-largest mobile phone maker.
Samsung Electronics, Asia's most highly valued electronics maker with a market value of $68.7 billion, announced last week that its net income for last year exceeded 10.7 trillion won ($10.3 billion), making it the first company in South Korea to achieve the landmark figure.
Samsung's announcement greatly boosted the country's other technology firms, which are enjoying strong exports. South Korea's exports of information and technology products reached $84.3 billion in 2004, up 29 percent from a year earlier, driven by the increasing sales of mobile phones and semiconductors, the Ministry of Information and Communication.
In another boost, South Korea launched trial operations last week of the world's first satellite-based television service for mobile phone users. The system allows mobile phone users in cars, trains or on street corners to watch high-definition digital TV programming by satellite.
The country's stem cell research and the launch of WiBro, or wireless Internet, could also boost the country's technology sector and the Kosdaq market. "The environment is very positive that the Kosdaq would keep the growth momentum as the main market is also booming," said Shin Dong-min, an analyst at Daewoo Securities.
But some analysts predict the buying spree encouraged by government's stimulus package may be a short-lived recovery as the country's economy remains in a prolonged slump caused by domestic consumption and the won's rapid rise against the U.S. dollar.
"Investors should be cautious of possible overheating in the Kosdaq market," said Suh Jung-kwang, an economist at LG Investment & Securities.
