South Korea's financial authorities have arranged an emergency meeting to revitalize the KOSDAQ market. The move comes as the tech-heavy index has collapsed helplessly over the past week, in stark contrast to the KOSPI's continued bull run. Behind the decision lies the view that, alongside structural reforms of the KOSDAQ market, fundamental measures to channel investor flows into the KOSDAQ must be devised through diagnoses from market experts.
According to the financial investment industry on Tuesday, the Financial Services Commission (FSC) plans to summon KOSDAQ market officials from brokerages on Thursday to discuss the current state of the KOSDAQ market and future revitalization measures. Among brokerages, some major firms designated as comprehensive financial investment business operators, including Mirae Asset Securities (006800.KS), are expected to attend.
The gap between the main KOSPI bourse and the KOSDAQ market has widened noticeably in recent weeks. The KOSPI has surged a remarkable 109% so far this year, raising expectations for it to reach the 10,000 mark within the year. By contrast, the KOSDAQ has gained only 11% over the same period. After breaking above 1,000 for the first time on a closing basis on January 26 (1,064.41), the index pushed past the 1,200 mark on April 24 (1,203.84), but has since given back its gains and is barely holding the 1,000 line.
In particular, the index climbed to 1,172.52 on May 26 on expectations surrounding the National Growth Fund, only to fall 2 to 3% for five consecutive trading days, dropping 146.49 points to 1,026.03 by Monday. Over the same period, the KOSPI continued its record-breaking rally, rising 753.98 points from 8,047.51 to 8,801.49. "This is why the assessment has emerged that, amid the domestic stock market boom, only the KOSDAQ has been relatively sidelined compared to the KOSPI," an industry official said. "With the boom centered on large-cap semiconductor stocks and the emergence of 'Samjeon-nix' leverage products, retail investor funds are flowing out of the KOSDAQ."
The authorities' move is interpreted as reflecting their intent to hear differentiated market diagnoses from KOSDAQ-dedicated teams, given that newly designated comprehensive financial investment firms have been instructed to strengthen their role in KOSDAQ market infrastructure. The possibility of a market downturn driven by investor flows is also under review. In May, foreign investors' net buying of KOSDAQ stocks reached an all-time high of 2.837 trillion won, but it is too early to judge this as a trend. Pension funds, despite the introduction of new incentives, have shown stronger selling pressure in the KOSDAQ market.
The move is also seen as the authorities' will to reflect additional field opinions in policy, as concerns grow that the currently pursued KOSDAQ two-tier system alone may not be enough to revitalize the market. Unlike the KOSPI, which is diagnosed as undervalued, concerns over overvaluation have been raised for the KOSDAQ. According to a Samsung Securities (016360.KS) report titled "Will KOSDAQ's Time Come?", the KOSDAQ's current 12-month forward price-to-earnings (P/E) ratio stands at 27.4 times, noticeably above its 10-year average of 17 times, and offers limited valuation appeal compared to the KOSPI's 8.0 times.
"From a mid- to long-term perspective, considering the opportunity cost of investment relative to the KOSPI, the investment appeal of the KOSDAQ index itself may be limited," said Cho Ah-in, senior research fellow at Samsung Securities. "Rather than the overall direction of the KOSDAQ index, a more clearly differentiated rally by individual stocks is likely to unfold."
Ultimately, sustaining a long-term upward trend beyond mere supply and demand will require earnings to back it up, just as with KOSPI-listed companies. "For the effects of policies that stimulate investment demand to expand, improvements in KOSDAQ companies' earnings must also accompany them," a financial authority official said.
