Individual Investors Buy 1.5 Trillion Won: Will a Rescue Come for KOSDAQ?

KOSDAQ Lags Behind KOSPI Early in the Year
Individual Investors Focus on KOSDAQ
Financial Industry Sees Ample Drivers for KOSDAQ Rebound

The relative underperformance of the KOSDAQ market remains evident in the new year. Although individual investors have purchased more than 1.5 trillion won worth of shares so far this year, the KOSDAQ index has remained virtually flat. However, the Yeouido securities industry believes that since the government is restructuring KOSDAQ as a growth platform for innovative companies, there is a possibility that the KOSDAQ market could catch up with KOSPI this year if policy and supply-demand factors align.

According to the financial investment industry on January 15, from January 2 to January 14, individual investors recorded a cumulative net purchase of 1.5205 trillion won in the KOSDAQ market during regular trading hours. This contrasts with their net selling of 1.4956 trillion won in the KOSPI market.

Individuals focused their purchases in the KOSDAQ market on leading stocks by market capitalization, such as ABL Bio, PharmaResearch, JYP Entertainment, Ecopro, Wonik Holdings, SM Entertainment, HPSP, and Robotis. These stocks share the commonality of having experienced rapid surges in the past or being linked to growth themes.

Just as investors achieved high returns by investing in KOSDAQ during the first half of 2023, when secondary battery-related stocks like Ecopro soared, many filled their portfolios in hopes of similar gains. However, unlike in the past, there has not been a repeat of such theme-driven rallies this year, resulting in lackluster trading performance. The share price of ABL Bio has fallen 4% compared to the end of last year, underperforming the KOSDAQ index. While PharmaResearch has risen more than 9%, it has not reached the average purchase price of individual investors.

The preference for KOSPI continues this year, as it did last year. Samsung Electronics and SK Hynix have risen by 16% and 14%, respectively, driving the KOSPI up by 11.8%. This large-cap-driven rally has further widened the gap with KOSDAQ, which is concentrated with small- and mid-cap stocks. Foreign investors and institutional investors recorded net sales of 813.7 billion won and 289.5 billion won, respectively, in the KOSDAQ market.

Nevertheless, financial investment industry experts remain relatively optimistic about the possibility of a KOSDAQ bull market materializing as individual investors hope. They cited as positive factors the government's ongoing efforts to reposition KOSDAQ as a growth platform for innovative and venture companies, promote the activation of venture capital, expand institutional investor participation, and simultaneously improve listing review and delisting systems.

Kang Jinhyuk, a researcher at Shinhan Investment Corp., said, "At the end of last year, the government announced the 'KOSDAQ Market Trust + Innovation Enhancement Plan,'" adding, "The goal is to restore market confidence and improve the market structure so that KOSDAQ can serve as a growth platform for innovative companies." He continued, "On the supply-demand side, we expect to see increased participation from institutions and foreign investors in KOSDAQ, which has so far been dominated by individuals."

The environment is being created for changes in capital flows. At the end of last year, financial authorities designated Korea Investment & Securities and Mirae Asset Securities as comprehensive investment firms with equity capital exceeding 8 trillion won. The mandatory venture capital supply ratio for comprehensive financial investment business operators will be gradually increased. Channels are opening for funds raised through promissory notes and integrated investment accounts (IMA) to flow into small- and medium-sized enterprises and innovative companies. The Business Development Company (BDC), scheduled to launch this year, may also include KOSDAQ-listed innovative companies as investment targets, increasing the likelihood that policy will translate into actual supply-demand effects.

In the mid- to long-term, the National Growth Fund is also cited as a favorable factor for KOSDAQ. This fund, which will invest 150 trillion won in advanced industries over the next five years, is closely linked not only to artificial intelligence (AI) and semiconductors but also to KOSDAQ's leading sectors such as bio, robotics, and secondary batteries. If the scope of support expands beyond early-stage venture companies to include listed companies and small- and medium-sized partner firms, the direction of policy funds could soon become a key criterion for sector selection within KOSDAQ.

Upward revisions to earnings forecasts for KOSDAQ-listed companies also support the rebound argument. While KOSPI's rally has been led by large-cap semiconductor stocks, KOSDAQ's earnings improvement trend continues as well. In the past, KOSDAQ has repeatedly rebounded after periods of prolonged relative weakness, coinciding with earnings improvement. The seasonal pattern of individual investors returning to the market at the beginning of the year after year-end capital gains tax avoidance selling also remains valid.

However, the nature of the rebound is likely to differ from the past. Rather than a theme-driven rally lifting the index, as in the first half of 2023, the securities industry expects a selective rebound centered on sectors and stocks aligned with government policy. Sectors expected to benefit from policy, such as robotics and bio, and stocks with visible earnings are likely to respond first.

An industry insider in the financial investment sector commented, "In this phase, differentiation among stocks in KOSDAQ may become more pronounced than the movement of the index itself," adding, "There is ample room for KOSDAQ to narrow the gap with KOSPI in areas where policy, supply-demand, and earnings converge."