*By Jung Myung-jae, Manager, Sales Division, Hyundai Motor Securities*
Since last year, the Korean stock market rally has been led primarily by KOSPI. This was thanks to the sharp earnings improvement at Samsung Electronics (005930.KS) and SK hynix (000660.KS), often called the two giants of KOSPI. Amid this KOSPI-driven rally, KOSDAQ active exchange-traded funds (ETFs) were launched on March 10. With KOSDAQ active ETFs debuting in a KOSPI-led bull market, what should we pay attention to?
Unlike KOSPI, KOSDAQ is a market centered on small- and mid-cap growth companies. Because it is home to many technology-based firms and companies in early growth stages, a high proportion of listed companies have yet to stabilize their earnings. As a result, analyst coverage is also limited. According to Timefolio, which launched the KOSDAQ active ETF, only 17.21% of KOSDAQ-listed stocks are currently covered by research reports. Even excluding financially distressed companies, this means roughly 70 to 80% of stocks remain largely unknown to the market.
This information gap surrounding KOSDAQ companies has long served as a barrier to investing in the market. Recently, however, securities firms have been expanding their small-cap research teams and asset managers have begun discovering stocks on their own, shifting how the market views KOSDAQ. The launch of KOSDAQ active ETFs can be interpreted as more than just the arrival of a new product. It may signal the beginning of a serious push to analyze and invest in the KOSDAQ market, which has been relatively overlooked.
Still, many investors feel uneasy about investing in KOSDAQ. About 42% of KOSDAQ-listed companies have posted average operating losses over the past three years, indicating considerable financial risk. This structure has been cited as a factor that heightens uncertainty around the KOSDAQ market. In response, the government recently activated a "KOSDAQ Delisting Intensive Management Unit" to strengthen the process of removing distressed companies. The move appears to be an institutional effort to clean up financially weak firms and boost the credibility of the investment environment.
Institutional and government interest in KOSDAQ is gradually growing. Institutions are expanding small-cap research while the government is stepping up market reforms to improve the investment environment. On top of this, the shift toward defined-contribution (DC) retirement pension plans and the expansion of ETF investing are creating a foundation for individual capital to flow into diverse markets. Many companies on KOSDAQ have yet to receive sufficient market attention. Now that information and capital are beginning to converge, this unknown territory is poised to become a new frontier of opportunity.