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Rally by politics-themed shares fleeting, unfounded: experts


By Lee Kyung-min

Rallies of shares related to high-profile politicians ahead of the April 10 general elections lack prudent investment considerations, experts said Thursday.

The repeated theme mostly concerns small-cap Kosdaq shares registering well over double-digit spikes. Propelling the uptrend are connections between management or holders of controlling stakes in the listed firms with political bigwigs. They can be by blood ties, equity investment, birthplace, school or regional ties.

Experts say the price jumps are almost always powered by investor expectations of a politically bolstered boon in business, and are rarely underpinned by strong corporate fundamentals or a robust growth outlook.

“The short-term, unfounded rally — however tempting — should be avoided,” said Nam Gil-nam, senior research fellow at Korea Capital Market Institute.

In previous presidential elections, some shares simply skyrocketed despite vague connections with then-leading presidential candidates.

“Some politically themed shares easily hit an intraday upper circuit limit,” he said.

The frequency of them hitting the upper price limit increased 54 percent in 2021, whereas the frequency dropped 38 percent for other shares.

“The 54 percent increase was already an unusually high figure in a year defined by stable index movements compared to a year earlier. Overall volatility heightened in the months leading up to the 2022 presidential election. This year is showing some fluctuations well within market expectations.”

The overheating of politics-themed rallies is concerning, he added, due primarily to a corresponding surge in leverage. Most investors are more often than not cornered about losing money after a short-term rally comes to an end.

“Leveraged traders are to incur losses that are certain to double or triple depending on the amount borrowed. It’s a risky bet for those with healthy investment priorities, but it is up to individuals whether to go ahead and take that risk, as with any investment.”

According to data from Korea Exchange (KRX), Hwacheon Technology more than tripled from 3,100 won in early February to 9,700 won ($7.20) Feb. 19, on the surging approval rating of Cho Kuk, leader of the Rebuilding Korea Party, a new liberal third party launched by the former justice minister.

The former auditor of the local heavy machinery manufacturer and Cho are Berkeley Law School alumni.

It dived after Cho denied his connections to the firm and news reports of its majority shareholder having sold off his entire stake.

The price moved around 5,300 won, Thursday, but is still far higher than the figure two months earlier.

The prices of Dongsin Engineering & Construction, Atec and Daiyang Metal remain in sync over the past three months. The three shares are reportedly linked to the main opposition Democratic Party of Korea Chairman Lee Jae-myung.

DukSung, a KOSPI-listed firm surged over 18 percent, March 19, after news of a highly probable term extension of the firm CEO, who reportedly has a connection to the ruling People Power Party interim leader Han Dong-hoon. It traded at around 9,479 won, Thursday.

The Financial Supervisory Service will continue its monitoring of illegal political-themed stock trading activities until April 10.

Read More: Rally by politics-themed shares fleeting, unfounded: experts

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