The Korea Exchange designated 36 stocks as managed stocks on August 12. These companies either failed to maintain a stock price above 1,000 won or did not meet the market capitalization requirements necessary for listing. This marks the first large-scale action under the revised listing regulations that took effect last month. Observers predict that the number of managed stocks could rise to around 100. This move signifies the long-awaited implementation of measures to remove failing companies from the market.
For years, the Korean stock market, particularly KOSDAQ, has operated under a structure characterized by a high number of listings but a low rate of delistings. Over the past two decades, 1,353 companies have been newly listed, while only 415 have been delisted. The result? Despite KOSDAQ's market capitalization increasing 8.6 times during this period, the index itself has only risen 1.6 times.
The presence of failing companies in the market has weighed down the index, making it difficult for investors to expect reasonable returns. The long-standing stigma of the 'Korea Discount' is closely tied to these structural issues.
Penny stocks exemplify this problem. Stocks with extremely low prices are highly volatile and often become targets for price manipulation, leading to significant losses for individual investors. It is no coincidence that some of the stocks designated as managed were previously associated with themes like inter-Korean economic cooperation. Stocks that fluctuate wildly based on news, regardless of their actual performance or growth potential, have long eroded market trust. The current action to filter out stocks that fail to meet market capitalization standards is a step toward establishing minimal market discipline.
However, there are concerns. Recently, single-stock leveraged products, particularly in the semiconductor sector, have drawn in market funds, causing a sharp decline across various sectors. KOSPI fell over 40% in just over a month, while KOSDAQ dropped by about 37%. Some companies designated as managed stocks may feel unjustly treated.
Nonetheless, such concerns should not undermine the integrity of the system itself. If some companies are caught up in the turmoil, this can be addressed through individual appeals or review processes, but it should not dilute the core standard of '45 consecutive trading days.' Experience has shown that if standards are lax, companies will seek loopholes. Indeed, there are already signs of attempts to evade the requirements through stock consolidations or reductions.
Looking ahead, it is crucial for authorities and the exchange to refine measures that prevent companies from avoiding delisting through superficial compliance. If companies can escape designation as managed stocks by merely changing their stock price without improving their fundamentals, this reform will be incomplete.
Additionally, as companies are expelled, it is essential to set appropriate entry thresholds for new listings. Rapidly removing failing companies while allowing sufficiently innovative and growth-oriented firms to enter KOSDAQ is vital for building a healthy ecosystem.
The recent mass designation of managed stocks and the subsequent delisting procedures may be painful, but expecting change without discomfort is unrealistic. Authorities must steadfastly uphold principles, and listed companies should seize this opportunity to transform into solid firms with strong performance and growth potential. This is the first step toward a healthier KOSDAQ market.
* This article has been translated by AI.
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