[MarketING] How Long Will KOSDAQ's Relative Strength Last?

KOSPI Rises for 3rd Day, Recovers 2450 Level
KOSDAQ Reclaims 850 Level After About 9 Months

[Image source=Yonhap News]

The KOSPI continued its upward trend for the third consecutive day, reaching the 2450 level. The KOSDAQ, which has been rising for five consecutive days, recovered the 850 level. This is the first time in about nine months since June last year. As the relative strength of the KOSDAQ compared to the KOSPI continues, market attention is focused on how long this trend will last.

KOSDAQ Recaptures 850 Level After About Nine Months

On the 30th, the KOSPI closed at 2453.16, up 9.24 points (0.38%) from the previous day. The KOSDAQ ended the day at 850.48, up 6.54 points (0.77%). It is the first time since June 10 last year (869.86) that the KOSDAQ has surpassed the 850 level based on the closing price.

The recovery of the KOSDAQ above 850 was driven by individual investors. On that day, individuals net purchased 122.4 billion KRW in the KOSDAQ market. Institutions also supported the market by buying 19 billion KRW. On the other hand, foreigners sold 122.7 billion KRW. In the KOSPI market, foreigners were the sole buyers with net purchases of 262.4 billion KRW, while individuals and institutions net sold 120.8 billion KRW and 141.9 billion KRW, respectively.

The relative strength of the KOSDAQ compared to the KOSPI continues. This year, the KOSPI has risen 9.85%, while the KOSDAQ has increased by 25.24%. Ji-young Han, a researcher at Kiwoom Securities, said, "In April, domestic market participants will be pondering whether the overwhelming outperformance of the KOSDAQ will continue," adding, "Since the activation policy for the KOSDAQ in early 2018, it is the first time that the KOSDAQ's trading volume has surpassed that of the KOSPI, making the sustainability of the KOSDAQ's advance a key point to watch." On that day, the KOSDAQ's trading volume was 15.0763 trillion KRW, significantly exceeding the KOSPI's 10.3588 trillion KRW. In March, the average daily trading volume of the KOSDAQ reached 12.6753 trillion KRW, while the KOSPI's was only 8.7226 trillion KRW.

From a supply and demand perspective, individual buying supported the relative strength of the KOSDAQ. Individuals have net purchased 38.026 trillion KRW in the KOSDAQ market this year. In just this month, they bought 3.0986 trillion KRW. Conversely, institutions and foreigners have net sold 27.751 trillion KRW and 2.547 trillion KRW, respectively, this year. Woong-chan Lee, a researcher at Hi Investment & Securities, analyzed, "In March, individuals bought more than 3 trillion KRW in the KOSDAQ market, showing signs of overheating in some KOSDAQ stocks," adding, "Individuals tend to have a high risk appetite and expected returns, and they follow stocks with upward momentum."

Relative Strength Due to Concentration

The relative strength of the KOSDAQ is attributed to the limitation of the KOSPI's rise due to external factors, with individual buying concentrated in KOSDAQ secondary battery stocks, leading to a distortion caused by concentration, according to some analyses.

One researcher said, "The upper limit of the KOSPI index, which is relatively affected by macro (uncertainty) factors, is restricted, leading to a stock-specific market within it, which is also the background for the KOSDAQ's strength. However, the dominance of the secondary battery sector has also distorted the market."

The share of healthcare, which was the leading sector in the KOSDAQ, in market capitalization has decreased, while the share of secondary battery stocks has significantly expanded. The healthcare sector's share of market capitalization fell from 24.1% at the beginning of last year to 22.0% currently. In contrast, the secondary battery sector's share doubled from 8.7% to 16.3%.

While the strength of secondary batteries may continue, volatility is also expected to increase. The researcher said, "Although concerns about overheating in specific themes are rising, the price momentum of sectors formed as leading themes may last longer than expected," adding, "Nevertheless, considering the high level of short-selling positions in secondary battery stocks recently, it is necessary to prepare for increased price volatility in these sectors."

If individual buying continues to flow in, the KOSDAQ's strength is likely to be extended. The researcher said, "Although the recent rise in some KOSDAQ stocks seems to be winding down, the influence of individual funds should not be underestimated," adding, "Since individual investors prefer direct investment over funds, the influence of individual supply and demand will become even greater."