Kosdaq set for resurgence with government support and increased liquidity

The Kosdaq, Korea’s secondary stock exchange, is currently experiencing a revival that has sparked speculation among investors about the possibility of the market reclaiming the 1,000 level. Recent data from the Korea Exchange reveals a significant increase in trading activity on the Kosdaq, with average daily turnover reaching approximately 11.5 trillion won in December. This surge marks the highest level in over two years and represents a 21 percent rise from the previous month.

In contrast, the Kospi, the primary board in South Korea with a market capitalization of around 3,000 trillion won, has been experiencing a cooling trend. Average daily trading on the Kospi decreased by 17 percent in December, highlighting a noticeable divergence between the two markets. Despite this, the Kosdaq index has shown strength, with its monthly average climbing by nearly 4 percent to 924.7 in December from 890.2 in November.

The resurgence of optimism surrounding the Kosdaq is attributed to the government’s efforts to address structural issues that have undermined investor confidence. President Lee Jae Myung has identified concerns such as volatility, market manipulation, and stringent delisting rules as key factors affecting market valuations. The government aims to crack down on manipulative and illegal trading activities, emphasizing the need for stricter regulations to safeguard the market’s integrity.

The Kosdaq, characterized by a significant retail investor presence of over 80 percent, had previously lagged behind the Kospi’s foreign capital-driven rally earlier in the year. While the Kospi soared to an all-time high of 4,227, marking a 76 percent increase, the Kosdaq only saw a 37 percent rise. Despite recent gains, the Kosdaq’s market capitalization remains below the 1,000 trillion won it reached in 2021.

Efforts to enhance market quality and transparency are evident through increased delistings and improved screening procedures. Delistings on the Kosdaq doubled this year, with a rise in companies removed through substantive examinations. The quality of new listings has also improved, with a record-high market value for newly listed companies and an increase in the number of firms with market capitalizations above 10 trillion won.

Anticipating further improvements, regulators have announced plans to address the Kosdaq’s challenges, including revising delisting thresholds and implementing tailored rules for emerging sectors. Financial institutions are also encouraged to participate in the Kosdaq market, with proposals to incorporate the index into benchmark returns for fund performance evaluations.

Several brokerages have projected that the Kosdaq could reach the 1,000 level as early as the first quarter of next year. Market analysts point to government support, seasonal trends, relative underperformance compared to the Kospi, and expectations of monetary easing by the US Federal Reserve as factors contributing to a potential upsurge in the Kosdaq’s performance. As the year comes to a close, both the Kospi and Kosdaq closed higher on Monday, showing positive momentum for the upcoming year.