KOSDAQ Shrinks Despite 'Productive Finance' Push as Investors Flock to Chip Giants

South Korea's KOSDAQ stock market is experiencing a significant downturn, with its market capitalization plummeting by nearly 260 trillion won in just three months. The index has reverted to levels seen before the current administration took office, despite government pledges to foster "productive finance" that channels money from real estate to businesses.

The primary driver behind this slump is the intense investor focus on semiconductor powerhouses such as Samsung Electronics and SK Hynix. Typically, a rally in leading stocks spurs a ripple effect across other sectors, but in this case, the introduction of leveraged products for single stocks has exacerbated the concentration of investment in these giants. The KOSDAQ market, which maintained a market cap exceeding 600 trillion won throughout May, saw a sharp outflow of funds thereafter.

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It's important to achieve a certain level of return on customer investments, so there are deep concerns on the ground.

Government initiatives, including introducing "venture capital supply obligations" for comprehensive financial investment businesses and enhancing incentives for major pension funds to participate in the KOSDAQ market, have so far failed to thaw frozen investor sentiment. The current market environment, where semiconductor stocks are soaring, makes it difficult for institutional investors to shift their attention to small and venture companies. "It's important to achieve a certain level of return on customer investments, so there are deep concerns on the ground," one securities firm official noted.

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If companies not included are selected separately, those left out could hardly receive any investment.

Earlier hopes for a KOSDAQ revival, fueled by the successful launch of the "National Participation Growth Fund" in April and May, quickly faded as market participants anticipated that only a select few companies would benefit. The recent announcement of a separate index for high-quality KOSDAQ companies, tentatively named 'Select,' has also had little impact, with industry insiders pointing out that it could disadvantage companies not included in this elite group.

Furthermore, stricter delisting requirements implemented this month, aimed at removing financially weak companies, are also dampening investor confidence. While intended to restore investor trust by weeding out "coin stocks" (those trading below 1,000 won), these measures could inadvertently harm individual investors. Experts believe that without a significant positive catalyst beyond the semiconductor boom, companies struggling to meet the new standards will find it difficult to improve their standing. Professor Lee Jun-seo of Dongguk University's Business Administration department warns that while delisting weak firms might boost market credibility, it could also lead to backlash from numerous KOSDAQ shareholders, potentially worsening the market's reputation. Some specialists suggest creating separate listing, disclosure, and delisting criteria for the KOSDAQ market, tailored to the unique characteristics of small and venture companies, distinct from the main stock exchange.

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While delisting weak firms might boost market credibility, it could also lead to backlash from numerous KOSDAQ shareholders, potentially worsening the market's reputation.