[10 Years of KONEX] ② Trading Volume and Foreign Investor Ratio at Embarrassing Levels... Sharp Decline in Transfers to KOSDAQ

Delistings Halved from 13 in 2021 to 6 in 2022
Individual Investors' Basic Deposit and Small Investment-Only Accounts Abolished
Scale-up Fund Scheduled for Completion This Year

Editor's NoteThe KONEX, a stock market dedicated to early-stage small and venture companies, has marked its 10th anniversary. The market is evaluated as having achieved half of its intended success. The market size has grown since 2013. However, there is an analysis that its incubating role in helping companies advance to the KOSDAQ market still has limitations. While the market capitalization of KONEX has increased more than tenfold, only about 90 companies have transferred their listings to the KOSDAQ market. It is pointed out that institutional investor-focused policies need to be complemented by institutional measures that encourage active interest from individual investors as well.

The KONEX market is regarded as having achieved some quantitative success in terms of the number of new listings, market capitalization, and capital raising scale. However, the prevailing assessment is that it still falls short qualitatively. In particular, the number of companies transferring their listings to KOSDAQ is actually on a declining trend. Trading volume and the proportion of individual investors are also at embarrassing levels. This means that the original purpose of "nurturing strong small companies" has not been fulfilled.

Since the establishment of the KONEX market (from 2014 to June 30, 2023), a total of 90 companies have transferred their listings from KONEX to the KOSDAQ market. This averages only 9 companies per year. Especially last year, only 6 companies transferred, which is below the average.

As of the 29th of last month, there were 24 companies, including Volvik, with zero trading volume on a given day (no shares traded). This accounts for 19.0% of all listed companies having no trading activity. On the KOSPI and KOSDAQ markets, stocks with monthly trading volumes below 20,000 shares are classified as 'low liquidity stocks' and designated as management stocks. Even considering that such standards are difficult to apply to early-stage small and venture companies, this clearly shows how stagnant the KONEX market is.

The average daily trading value has also been decreasing. It increased from 390 million KRW in 2013 to 4.8 billion KRW in 2014. Then it declined to 2.46 billion KRW in 2019, 5.18 billion KRW in 2020, 7.41 billion KRW in 2021, 2.24 billion KRW in 2022, and about 2.51 billion KRW as of May 2023.

Foreign investors have virtually ignored the KONEX market. The proportion of foreign ownership in KONEX market capitalization was only 0.18% at the end of 2013 and stood at 0.79% as of June 29, 2023.

The number of companies entering the KONEX market has also sharply declined. Until 2016, a considerable number of companies (50) entered the market after its establishment. However, this number shrank to 29 in 2017, 17 in 2019, 7 in 2021, and 5 as of May 2023.

More important than newly listed companies is the number of companies transferring their listings. Transferring listings means moving to the KOSDAQ market. It is interpreted as an indicator that early-stage small and venture companies have grown by increasing their scale and substance through capital raising on KONEX. The number of transfers has been declining since 2021. According to the Korea Exchange, the number of companies transferring listings increased from 6 in 2014, the year after the market opened, to 13 in 2021. However, it sharply decreased to 6 in 2022 and 2 as of May 2023.

One of the reasons the KONEX market is losing vitality is accessibility. Originally, individual investors had to maintain a minimum deposit of 30 million KRW to purchase KONEX stocks or use a small investment-only account that allowed deposits of up to 30 million KRW annually. As criticisms arose that such regulations hindered investor accessibility, last year the Korea Exchange abolished the minimum deposit requirement and the small investment-only account system for individual investors.

A CEO of an unlisted company said, "Trading volume is negligible and funding is not easy, so the effectiveness of listing on KONEX is practically non-existent," adding, "Although the exchange lowered investment hurdles last year, individual investors have already turned their attention to unlisted investments or over-the-counter markets."

In the same context, there is criticism that the establishment of the scale-up fund, which connects KONEX companies and investors, was delayed. The scale-up fund was completed last year with the purpose of supplying capital to KONEX-listed and unlisted companies. The Korea Exchange, Korea Securities Finance Corporation, and other securities-related institutions, along with private funds, each contributed 50 billion KRW, creating a total fund of 100 billion KRW. Another 100 billion KRW fund is planned to be established this year.

An asset management company official said, "The KONEX market basically has the image of companies that cannot enter the KOSDAQ," and added, "InnoGene, which recorded a 'Ttasan' (a term for a stock that doubles on the first day of trading), is an exceptional case." He also said, "If the scale-up fund had been established during 2020-2021, when there was a boom in startup and unlisted company investments, a lot of capital would have flowed into the KONEX market, so the timing is regrettable."