The KOSDAQ, launched in 1996 with aspirations of becoming "Korea's NASDAQ," marked its 30th anniversary, but the celebratory atmosphere was notably absent.
Once a thriving platform for venture and biotech companies, the market is now experiencing a rapid decline in trading and liquidity as investments shift towards large-cap semiconductor stocks amid a surge in artificial intelligence (AI) investments. Retail investors, who once heavily favored KOSDAQ, are increasingly moving their funds to Samsung Electronics and SK Hynix, further weakening the market's support from individual investors. While discussions on market reforms continue, concerns are growing that without restoring investor confidence, the KOSDAQ may struggle to escape a prolonged downturn.
The KOSDAQ's struggles have become more pronounced this year. While the KOSPI has surged over 80% due to the AI semiconductor rally, the KOSDAQ has fallen more than 10% since the beginning of the year, making it one of the worst-performing markets among major global exchanges. On its 30th anniversary on July 1, the KOSDAQ index remained at 929, failing to reach its initial launch index of 1,000 points in 1996, and it dropped to 785 on July 9. The market's overall health is rapidly deteriorating, with declines in trading volume, investor funds, and individual trading activity.
One significant factor affecting market sentiment was the launch of a single stock leverage ETF for Samsung Electronics and SK Hynix on May 27. This high-risk product, which aims to double the daily returns of specific stocks, has faced criticism as a "gambling ETF" due to its volatility. However, amid the AI investment boom, retail investors have shifted their funds away from KOSDAQ growth stocks in biotech and healthcare towards semiconductor leverage ETFs and large-cap AI semiconductor stocks.
Since the ETF's launch, the KOSDAQ has set new record lows seven times. During the same period, the KOSPI rose by 2.3%, while the KOSDAQ fell by 8.8%.
The trend is also reflected in ETF performance. According to KOSCOM's ETF investment information platform, "ETF CHECK," the KODEX KOSDAQ 150 ETF, which tracks the KOSDAQ 150 index, has dropped 13.9% in the past month. In contrast, a long-short strategy that bets on KOSPI strength and KOSDAQ weakness has yielded high returns, with the KODEX 200 Long KOSDAQ 150 Short Futures recording a 9.04% return, while the opposite strategy, KODEX KOSDAQ 150 Long KOSPI 200 Short Futures, has seen a 12.63% loss.
This shift is also evident in the flow of funds. As of July 7, investor deposits had decreased to 112.2 trillion won, down from 139.7 trillion won a month earlier, marking the lowest level in nearly three months. During the same period, retail investors sold a net 1.41 trillion won worth of KOSDAQ stocks.
Trading activity has also contracted sharply. According to data from the Korea Exchange (KRX), KOSDAQ trading volume was approximately 306 trillion won in the ten trading days leading up to the ETF launch from May 13 to 26. However, from May 27 to June 11, immediately after the launch, it dropped to 209 trillion won, and in the most recent ten trading days (June 24 to July 7), it fell to 145 trillion won. In just over a month, trading volume has shrunk to half its previous level.
Retail investors have been leaving the KOSDAQ even more rapidly. In the ten trading days following the ETF launch, individual trading volume on the KOSPI increased by 4.1%, while KOSDAQ individual trading volume plummeted by 37.9%. In the most recent ten trading days, KOSDAQ individual trading volume has decreased by 60.6% compared to before the launch, while the KOSPI's decline was limited to 28.2%. Retail investors, often referred to as "ants," currently account for about 79% of KOSDAQ trading, down from 84-87% during the retail investment boom of 2020-2021. As individual funds exit, KOSDAQ's liquidity is inevitably shrinking.
In the past, retail investors flocked to the KOSDAQ in search of growth stocks in biotech and healthcare. However, the current AI investment boom and the strong performance of Samsung Electronics and SK Hynix have drawn demand towards high-risk, high-reward single stock leverage ETFs.
The KOSDAQ's structural limitations are becoming increasingly evident. Major companies like Naver, Kakao, and Celltrion have transitioned to the KOSPI after achieving growth, and Alteogen, currently the top company by market capitalization, is also seeking to move to the KOSPI. As quality companies continue to leave, the number of so-called "zombie companies" has increased, and repeated capital increases have undermined investor trust.
In response to the 30th anniversary, the Korea Exchange held "KOSDAQ CONNECT 2026" and is pursuing reforms, including strengthening listing maintenance requirements, improving technology-based listings, and implementing a three-tier market structure divided into premium, standard, and managed markets. Jeong Eun-bo, chairman of the Korea Exchange, stated, "We will make KOSDAQ a trusted market through a 'many births, many deaths' structure."
However, many in the market argue that institutional improvements alone are insufficient. Without nurturing new representative companies to lead in the AI era and restoring investor confidence, the KOSDAQ risks remaining a "transit point for companies heading to the KOSPI" rather than a market for future enterprises.
Investment expert Kim Jeong-hoon noted, "As delisting requirements are tightened, it is crucial to create a structure where growth-validated companies can conduct proper IPOs rather than increasing technology-based listings. Recently, there have been numerous cases where companies that failed to attract institutional demand during the pre-IPO process traded below their offering price shortly after listing, further eroding trust in the IPO market."
He also pointed out the lack of communication from companies with investors, stating, "Many KOSDAQ-listed companies lack dedicated investor relations personnel. A system for actively communicating with shareholders needs to be improved." He added, "Amid the AI investment boom, market attention is focused on Samsung Electronics and SK Hynix, making it difficult to feel the effects of policy changes."
While it is too early to determine whether the shift of retail funds is a structural change, analysts warn that if the trend of capital concentration in AI semiconductor-related products continues and new investment inflows do not recover, a meaningful rebound for the KOSDAQ will be challenging.
As the KOSDAQ celebrates its 30th anniversary, it continues to experience growing pains. The challenge now is to create reasons for investors who have left for AI semiconductors to return, and to foster the growth of companies and market trust that will serve as the starting point for that return.
* This article has been translated by AI.
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