The KOSPI has finally surpassed the 9,000 mark, marking a new milestone in South Korea's stock market history. A rally in large-cap stocks, particularly in semiconductors and artificial intelligence (AI), has led to projections of a '10,000 KOSPI.' However, on the same day, the KOSDAQ barely clung to the 1,000 level, declining by more than 3% while the KOSPI reached an all-time high. This stark contrast highlights the polarization within South Korea's capital markets.
The KOSDAQ's underperformance cannot be attributed solely to market conditions or supply and demand issues. Market participants lack fundamental confidence in the KOSDAQ.
Looking at the KOSDAQ 150 index, the issue is clear. Of the 150 constituent companies, 40 reported net losses in the first quarter of this year, accounting for over a quarter of the total. In terms of market capitalization, the proportion of loss-making companies reaches one-third. This indicates that a significant portion of the KOSDAQ's representative index is filled with companies that are still not profitable.
While losses can be a natural part of the growth process for innovative companies, particularly in the biotech and high-tech sectors where research and development investments often lead to years of deficits, the problem lies in the KOSDAQ becoming a market that evaluates corporate value solely based on future growth expectations. When those expectations falter, stock prices can be expected to drop sharply.
In fact, the KOSDAQ market has repeatedly undermined investor confidence over the years. Frequent fundraising through rights offerings and convertible bonds, controversies over physical divisions, inadequate shareholder return policies, and frequent disclosure violations are notable examples. Although the KOSDAQ's market capitalization has significantly increased over the past 20 years, the index's growth rate has not kept pace. This suggests that while companies have grown, investors have not adequately shared in that success.
The reason institutional investors are turning away from the KOSDAQ is rooted in this lack of confidence. Pension funds and foreign investors prioritize sustainable profitability and governance over growth potential. It is challenging to make long-term investments in a market where a significant portion of the representative index consists of loss-making companies. Indeed, pension funds that heavily net bought KOSDAQ stocks last year have shifted to net selling this year.
The government is promoting market revitalization through the establishment of a National Growth Fund and the introduction of a KOSDAQ promotion system. However, merely injecting liquidity into a market lacking trust may provide short-term stock price support but will not lead to fundamental improvements.
What is needed now is not quantitative expansion of the KOSDAQ but qualitative innovation. There should be a strengthened system for evaluating the profitability and shareholder value enhancement efforts of listed companies. Alongside strict penalties for disclosure violations, investor protection measures also need to be reinforced. The KOSDAQ 150 should be reviewed for improvements that reflect not just market capitalization and trading volume but also profitability and financial soundness to some extent.
The reason the U.S. Nasdaq has become the world's leading innovation market is not merely due to the number of tech companies but because it is backed by trust in the market. Investors believe that as companies grow, the benefits will ultimately return to shareholders.
The KOSPI's 9,000 era symbolizes the growth of South Korea's capital markets. However, the fact that the KOSDAQ remains stuck around the 1,000 mark reveals another reality. If the KOSDAQ, which should be a stage for innovative companies to grow, cannot overcome the wall of trust, the future of South Korea's capital markets may remain incomplete.
What the KOSDAQ needs is not more money but a belief that it is a market where investors can safely make long-term investments. The starting point for breaking free from the '1,000 KOSDAQ' constraint ultimately lies in restoring that trust.
* This article has been translated by AI.
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