Signs of Overheating in the Stock Market Grow as Number of Investment Warning Stocks Jumps 50% in a Month

The number of stock overheating alerts tied to the KOSPI Composite Index's record-setting rally jumped 50% in just one month. Experts say investors should remain cautious about volatility, as the index has surged to the 6,900 level in a short period.
According to the Korea Exchange (KRX) on the 5th, a total of 102 stocks were designated as investment warning stocks in the KOSPI Composite Index and Korea Securities Dealers Automated Quotations (KOSDAQ) markets last month. That was up 50% from 68 cases in the previous month. In particular, 47 stocks were placed under investment warning in a single day on the 4th. The number of investment risk stocks, the highest level of market alert, also surged 60% from four in March to 10 in April.
The Korea Exchange issues market alerts in stages when it judges that a stock has risen sharply and volatility has increased, making investor caution necessary. The system is designed to warn investors and prevent unfair trading, and it consists of three levels: investment caution, investment warning, and investment risk. Once a stock is designated as investment warning or investment risk, investors must post 100% margin, which restricts margin trading on credit. Buying with credit loans also becomes unavailable.
The rise in market alerts was driven by a fresh influx of large-scale funds into the stock market on expectations of a record-setting rally. Over the past month, the KOSPI Composite Index jumped 30.61%, from the 5,052 level to 6,590. As a result, investor deposits, a pool of cash waiting to enter the market, reached 129.7321 trillion won on the 29th of last month, up 16.7% from 111.0741 trillion won on March 30. The figure is now nearing the all-time high of 132.0682 trillion won recorded on March 4.
By market, the number of KOSPI Composite Index stocks designated as investment warning stocks rose 90% from 10 in the previous month to 19 last month. Overheating was especially evident in cable and aluminum stocks such as Gaon Cable, Daewon Cable Preferred Stock, and Sam-A Aluminum. The backdrop is concern over rising global commodity prices due to the war in the Middle East. As the conflict disrupted shipping through the Strait of Hormuz and caused supply bottlenecks, the London Metal Exchange Index, which reflects prices of major nonferrous metals such as aluminum and copper, surged 17% in April alone.
In the KOSDAQ market, the number of investment warning stocks increased 43% from 58 in March to 83 in April. Stocks related to optical communications and 5G and 6G, including TAIHAN Fiberoptics, WooriNet, and OE Solutions, were among those listed. Optical communications are drawing attention as an alternative to conventional copper wires amid a sharp increase in data traffic driven by the spread of Artificial Intelligence (AI) data centers.
As the sharp rally in large-cap semiconductor stocks continued, share prices in the semiconductor materials, parts and equipment sector, which is expected to benefit, also climbed steeply. Investment warnings were issued one after another for major semiconductor equipment names such as Jusung Engineering and EO Technics. In addition, quantum cryptography-related stocks such as XGate and Dream Security were added to the investment warning list. Investors were also drawn in after NVIDIA Corporation unveiled its open-source quantum artificial intelligence model, "Ising," on April 14 local time. The model is seen as a potential tool to speed up quantum error correction, improve accuracy, and bring commercialization of quantum computers closer.
As concerns over overheating grow, the KOSPI Composite Index rose more than 5% in a single day the previous day to close at 6,936, prompting securities analysts to warn that investors should be mindful of volatility caused by the recent sharp gains.
Lee Sang-heon, an analyst at iM Securities, said, "Foreign investors pushed up the index by buying more than 300 billion won net in a single day on the 4th, mainly in semiconductors, but such short-term surges are difficult to sustain." He added, "Now that the index has reached record-high levels, stocks whose price-earnings ratio (PER) growth slows from the second quarter onward may lose momentum." He also noted, "If oil prices, which have jumped on the war in the Middle East, lead to weaker consumption and global central banks shift toward tightening, volatility could expand."
nodelay@fnnews.com Park Ji-yeon Reporter