[NEWS ANALYSIS] Investors turn to niche stocks with mass-market potential

Investors are shifting towards niche stocks with mass-market potential such as robots and autonomous driving, as demand for EV battery and semiconductor stocks declines.

An image of a stock market display screen [SHUTTER STOCK]

After the room-temperature superconductor came MXene, followed by quantum computing. Today, the latest developments are in robots and autonomous driving.

Investors are flocking to smaller science or tech-themed stocks, pushing the share prices up and down as demand for once-highly-coveted EV battery and semiconductor stocks slump down.

Driven by the recent popularity of thematic investing, the daily trading volume of the smaller, tech-heavy Kosdaq market has surpassed that of the main Kospi bourse, which is led by heavyweights in manufacturing such as Samsung Electronics and Hyundai Motor, from January to August this year.

The average daily trading volume for the Kosdaq stocks, which are worth 435.7 trillion won in a combined market cap as of Friday, stood at 10.71 trillion won, compared to Kospi's average of 10.11 trillion won during the same period, according to the Korea Exchange.

Considering that the total market cap of the Kospi market is nearly five times that of Kosdaq, it is a rare occasion for its trading volume to fall behind the smaller bourse.

Such a trend is attributed to this year's investor frenzy toward EV battery stocks, namely EcoPro companies, as well as other minor stocks that followed.

One prominent example was an intense yet short-lived rally for superconductor stocks.

Since the claim of having developed the world's first room-temperature, ambient-pressure superconductor by a team of Korean researchers came to the public's attention, retail investors promptly rushed toward superconductor-related stocks, sending the prices on a roller-coaster ride.

Shinsung Delta Tech's share price, which stood at 13,800 won on July 28, spiked as high as 68,300 won on Aug. 23 in the Kosdaq market, a whopping 394 percent jump, as the superconductor claim swept the internet.

Its share is now trading at 47,350 won as of Friday, after scientists across the world have come forward to debunk the superconductor claim.

Shinsung Delta Tech was considered a superconductor-themed stock along with Power Logics as the companies have invested in a venture company that holds a stake in Quantum Energy Research Centre, a private company headed by Lee Suk-bae, a lead author of the manuscripts claiming the superconductor discovery.

Power Logics reached 21,700 won in Kosdaq on Aug. 16, from 6,010 won on July 28. On Friday, it closed at 8,200 won.

As the superconductor frenzy began to die down, it was shortly replaced with two-dimensional nanomaterial MXene, quantum computing and later graphene, driving a set of stocks to hit the ceiling.

More recently, Morgan Stanley's note suggesting that Tesla's supercomputer Dojo may add $500 billion to the company's market value drove autonomous driving-related stocks up in the Korean market as well. Kosdaq-listed Furonteer rose 29.85 percent to 39,800 won on Tuesday following the report, but closed at 33,250 won as of Friday.

Such short-lived buying sprees of "high-risk, high-return" is due to a lack of other attractive price drivers in the market, according to analysts.

"The stock market is slow and it is not likely that there will be a leading sector in the current situation," said Lee Woong-chang, analyst of Hi Investment & Securities. "Because there are no leading stocks, simple rotation trading and minor themes are driving the market."

While thematic investing involving relatively smaller stocks is gaining traction, EV battery stocks, which have been shooting through the roof in the first half of the year, are losing their steam due to declining profitability and intense competition from Chinese rivals.

"Larger stocks are trading slow amid persisting external uncertainties without a strong price driver in the Kospi market and the inflow of investments from foreigners and program trading falling," said Choi Yoo-joon, an analyst at Shinhan Securities in a report released on August 25.

"Unless something that may kick off a turnaround in the market trend comes up, the current trend revolving around theme stocks will continue," Choi added.

As the heat continues to rattle the market, the financial authorities are warning retail investors of possible risks of thematic investing. The Financial Service Commission said that it will tighten the monitoring system and improve the mandatory disclosure system in order to balance "the excessive tilt toward thematic investing."

"The reasons for this year's particularly strong popularity of thematic investing are the supply chain restructure that has been picking up pace since last year, and the rising expectation for new technologies triggered by the emergence of generative AI," Lee Jin-woo, analyst of Meritz Securities, said.

"The challenge is to discern which stocks are being overvalued and which are more close to reality."

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]