South Korea’s stock market was tepid in 2019 and continues to face uncertainties, rankling many investors who are complaining that technology firms are being preferred for listing on the secondary Kosdaq bourse.

While the stock market operator has highlighted the system as a vital foothold for new promising and innovative business players, skeptics also suggest that it provides excessive benefits to underqualified rookies.

The number of companies listed on Kosdaq through the preferential process for tech firms stood at 87 as of last year, according to the Korea Exchange (KRX) on Sunday.

After the preferential policy was implemented in March 2005, the accumulated total dwindled to 27, but picked up momentum in the 2016-2019 period.

Of the accumulated total, biotech firms accounted for 77 percent, but in recent years an increasing number of non-biotech firms have been prolific in their initial public offerings. Last year, eight of the 22 listed companies were from non-biotech sectors.

The uptrend in specialized tech-based IPOs was largely attributable to the government’s policy initiatives to nurture the biotech industry and promote innovative growth, according to KRX.

Another factor was the technology assessment system, introduced in 2015 to help the KRX properly estimate the potential market value of the technologies of early-stage businesses.

Investors are not convinced, however, on whether such a preferential treatment has had the intended effect of revitalizing the stock market here.

The aggregated market capitalization of 22 firms that went public last year exceeded 3 trillion won ($2.6 billion). Their public offering stood at 613.8 billion won, accounting for 24 percent of Kosdaq’s yearly total.

The annual Kosdaq index, in contrast, fell to 669.83 points as of last year, down 0.9 percentage point on-year.

As of Thursday last week, 59 out of the 87 companies saw their stock price slip from the time of listing.

Given the latest results, some industry observers pointed out that the system may have some side effects as the market ties up the liquidity of low-performing companies.

Despite Kosdaq’s sluggish growth over the past two years, the price-earnings ratio has increased by double digits.

“Higher PER indicates less profits and is less attractive for investors. For foreign investors, it would be more rational to make investments in stocks of firms with lower PER,” said an analyst from one of the securities firms here, who wished to remain anonymous.

“Major firms in emerging stock markets such as in China, Taiwan and Vietnam have recorded lower PER of listed firms than Kosdaq.”

Refuting such pessimistic opinions, KRX underlined the purpose for its preferential treatment.

“Many biotech companies have resorted to (this fast-track IPO process) to raise funds and go public,” an official said.

The local stock market operator also vowed that it will continue to enhance the technology assessment system to ensure the credibility of the special IPO process.

By Jie Ye-eun (yeeun@heraldcorp.com)