The South Korean stock market has recently experienced a sharp decline, with the KOSDAQ index recording a significantly larger drop than the KOSPI, effectively returning to levels seen a year ago. After surpassing the 1,000 mark earlier this year, the KOSDAQ has faced a rapid deterioration in investor sentiment due to the launch of a single-stock leverage exchange-traded fund (ETF) and poor performance in the pharmaceutical and bio sectors.
On July 24, the KOSDAQ index closed at 748.22, down 5.32% from the previous trading day, marking its lowest closing level since June 2 of last year (740.29). In contrast, the KOSPI rose 148.01% from 2,698.97 on June 2 last year to 6,690.62 on July 24.
The KOSDAQ had recovered to the 'thousand mark' (1,000) in January for the first time in nearly four years and peaked at 1,203.84 in April. However, following the launch of the single-stock leverage ETF based on Samsung Electronics and SK Hynix at the end of May, investor funds shifted towards large-cap stocks on the KOSPI, leading to a rapid change in market dynamics.
From May 27 to July 24, the average daily trading volume in the KOSDAQ market was 8.766 trillion won, a 39.29% decrease from the average of 14.44 trillion won prior to the ETF launch. This contraction in market trading has quickly cooled investor sentiment, creating a vicious cycle where reduced trading volume leads to poor index performance.
The pharmaceutical and bio sectors have also faced a series of setbacks contributing to the index's decline. Some of the top market capitalization stocks have struggled due to issues such as share sales by CEOs, inadequate disclosures, and delays in new drug clinical trials. Additionally, rising interest rates have dampened investor sentiment towards growth stocks, while battery-related stocks have not shown significant rebounds, further weakening the overall upward momentum of the KOSDAQ.
Individual investors have also exited the KOSDAQ. Since May 27, individuals have net sold 1.68 trillion won in the KOSDAQ market, while during the same period, they net bought 55.779 trillion won in the KOSPI. Analysts suggest that as capital flows towards large-cap and semiconductor stocks, the supply-demand gap in the KOSDAQ has widened.
Market analysts believe that policies aimed at revitalizing the KOSDAQ could be a key factor in the market's recovery. The government plans to launch a second national growth fund worth 600 billion won in the third quarter and implement a 'KOSDAQ elevation system' in the first half of next year, which will categorize approximately 1,800 KOSDAQ-listed companies into premium and standard markets.
Jung Sang-hwi, a researcher at Kyobo Securities, stated, "The KOSDAQ elevation system is a measure to enhance the qualitative competitiveness of listed companies, similar to the Tokyo Stock Exchange's market reform in 2022. It could serve as an opportunity to revive the investment momentum in the struggling KOSDAQ market."
* This article has been translated by AI.
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