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‘Theme Stocks’ Gain Popularity

Posted January. 17, 2006 03:59,   


With the New Year, “theme stocks” have become even more popular in the stock market.

On January 2, the first day of securities trading, Wibro theme stocks led the market. Last week, stocks related to power transmission to the North soared. On January 16, stocks involving childcare rose by the daily permissible limit. Theme stocks refer to grouping several stock items into one theme. They are formed not by official indexes made by the Korea Stock Exchange but through unofficial channels like rumors or stock analysis.

When the demand for beef plummeted after the outbreak of mad cow disease, stocks of fish and chicken manufacturers are considered as mad cow disease theme stocks with share prices soaring.

Biotech and stem cell theme stocks that were bullish last year lost much value after the scandals surrounding Prof. Hwang of Seoul National University, dealing a hard blow to investors. One of last year’s major theme stocks was entertainment stocks, which now shows fluctuations.

Above all, the problem is that some companies try to raise their stock prices by instigating the popularity of theme stocks.

Theme Stock Wave-

Recent themes that are popular in the stock market are Wibro, power transmission to the North, and childcare as a way to combat the low fertility rate, but they do not guarantee the appreciation of share prices.

Cross-border power transmission theme stocks hit an upper limit when North Korean leader Kim Jong Il was reported to visit China on January 11, yet they soon plummeted. Major stock prices tumbled by 10 percent within a few days and investors who pinned hopes on the theme stocks suffered.

A stock analyst said “Even when cross-border power transmission begins, we cannot be so sure about the performance of related companies. The rise of related stocks on the news of Kim’s visit to China is the result of speculation,” said the analyst.

Childcare-related theme stocks showed rapid upward movement yesterday on the news that the government will invest 19 trillion won by 2010 in a bid to address the low fertility rate.

Another analyst stated that some items of yesterday’s stock rally were not the beneficiaries of the government’s plan to tackle low birth rate, but ones requiring caution with expected poor performance when the trend holds.

Speculation and Searching for a Jackpot-

Experts on the stock exchange say that most once popular theme stocks ended up as failures. Even though some got attention from investors and soared for a short time, they tend to tumble without adequate good performance.

The value of stocks of biotechnology and stem cell themes hovers around 60 percent of what it was last November. Investors who poured their money believing that such stocks are next big thing ended up losing money.

Another negative side effect of soaring theme stocks is that sound companies stand on shakier ground because of relative deprivation. More CEOs tend to think that jumping on the bandwagon of rising theme stocks rather than trying to have better performance will increase corporate values.

The amount of investment money into the biotechnology sector made by companies listed in KOSDAQ between January and October last year was 172 billion won, more than 100 times that of 2004, which was 1.5 billion won. Companies whose names include “bio” saw their stock prices soar, and other firms invested hundreds of millions of won into biotechnology that has little to do with what the companies do in order to put “bio” in the corporate name.

Some manufacturing companies form joint management or change what they focus on in an effort to take advantage of popular entertainment themes.

Jang Yong-soo of Dongbu Securities said, “With theme stocks of little real value, some corporate leaders are obsessed with seeking fortunes by labeling themselves with popular themes, which in turn instigates speculative investments and has a negative impact on the economy as a whole.”

Wan-Bae Lee roryrery@donga.com