KOSDAQ Sees Second Day of Gains Amid Foreign Investment Surge, But Performance Gap with KOSPI Remains

South Korea's KOSDAQ market saw a "buy-side call" for the second consecutive trading day on May 22, signaling a notable surge in stock prices. This uptick follows the successful launch of the "Kukmin Seongjang Fund" (National Growth Fund), which sold out quickly and has fueled optimism for the KOSDAQ market. However, market analysts caution that without fundamental improvements, the current rally may be limited.

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Continuous inflow of passive funds is expected, which will be a strong source of liquidity for mid- and small-cap stocks.

The KOSDAQ 150 futures and KOSDAQ 150 index triggered the buy-side call mechanism on May 21 and 22. This marks the 11th instance of a "call" activation this year and the eighth for a buy-side call. Foreign investors have been the primary drivers of this recent upward trend, injecting approximately 2.1 trillion won (about $1.5 billion) into the KOSDAQ market between May 7 and May 22, a period during which they were net sellers in the KOSPI. Conversely, domestic individual investors offloaded 1.1 trillion won worth of KOSDAQ stocks.

Foreign investors have concentrated their investments in KOSDAQ-listed companies within the semiconductor, bio, and robotics sectors. This strategy mirrors the rally in large-cap KOSPI stocks, particularly in semiconductors. Analysts suggest foreign investors are targeting promising companies within the expanding artificial intelligence (AI) value chain and established leading stocks.

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The gap between the KOSPI and KOSDAQ indices has widened to the largest level ever, reaching 6.6 times.

Despite these positive developments, a significant performance disparity between the KOSPI and KOSDAQ remains a major concern. While the KOSPI has surged 82.10% year-to-date, the KOSDAQ has only managed a 22.80% increase. A Samsung Securities analysis revealed that the gap between the two indices has reached a record high, with the KOSPI's performance being 6.6 times that of the KOSDAQ.

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Semiconductors are transforming into an industry with structural demand growth, not just cyclical demand, as evidenced by export data and spot DRAM prices.

Analysts attribute this gap partly to the composition of the indices. The KOSPI's electrical and electronics sector, heavily influenced by giants like Samsung Electronics and SK Hynix, accounts for 60% of the index. In contrast, the KOSDAQ's tech sector represents only 22%. Experts argue that for the KOSDAQ to improve its competitiveness, especially if the semiconductor-led rally continues, structural changes are necessary. They suggest that KOSDAQ companies, particularly in the bio-tech sector, need to provide more substantial disclosures, such as technology transfer agreements, to match the tangible proof seen in KOSPI's export data and DRAM prices.

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The KOSDAQ also needs substantial disclosures, such as technology transfers from its top bio-tech companies, to overcome the gap in index composition with the KOSPI.