The KOSDAQ index reclaimed 1,000 points for the first time in four years and soared 17% in just four trading days. As the rapid rally accelerates, the fervor of individual investors trying to jump on board is concentrating on "leveraged exchange-traded funds (ETF)" that aim for twice the index's gains.
Unlike KOSPI, the KOSDAQ market has a chronic problem of information asymmetry because only a limited number of stocks have brokerage reports or earnings forecasts. Amid this thirst for information, money is flocking to leveraged ETFs, causing a "distortion of supply and demand" in which only some top constituents of the index are surging. KOSDAQ has few theme ETFs that bundle only strong-performing sectors, so analysts say funds are more likely to concentrate in specific top sectors rather than warming the broader market.
According to Koscom ETFCheck on the 30th, individual investors made a net purchase of 1.1127 trillion won of the "KODEX KOSDAQ150 Leveraged" ETF over the past month. Retail investors' lump-sum money has effectively bet on a high-risk, high-revenue product that tracks twice the daily return.
The hallmark of this KOSDAQ rally is that the tilt toward ETF investing is deepening rather than buying individual stocks.
That is clear in the supply-demand indicators. In January this year, financial investment firms made a net purchase of 9.424 trillion won in the KOSDAQ market. Financial investment flows reflect individuals' ETF transaction activity.
However, if KOSDAQ investing via ETFs strengthens, it is seen as likely to funnel more funds only into certain top sectors.
First, both the KOSDAQ150 ETF and the KOSDAQ150 Leveraged ETF, which individual investors mainly buy for KOSDAQ exposure, track the return of the KOSDAQ 150 index. This index includes only leading stocks with strong market capitalization and liquidity among those listed on the KOSDAQ market. About 1,800 corporations are listed on KOSDAQ, which means capital continues to flow into only about 8% of them.
The government plans to induce institutional inflows by reflecting the KOSDAQ index in pension fund evaluation criteria. But skepticism remains high in the market. On KOSDAQ, fully half of corporations do not even provide earnings forecast (consensus) data, which makes the range of stocks pension funds can actually hold in their portfolios extremely limited.
The Ministry of Planning and Budget decided on the 29th of last month to reflect the KOSDAQ index in the benchmark return for large and small funds. The existing domestic equity benchmark only reflects KOSPI; the plan is to blend in 5% KOSDAQ to increase incentives to participate in the market.
Ko Kyung-beom, an analyst at Yuanta Securities Korea, said, "Compared with KOSPI 200, there are fewer KOSDAQ stocks covered by analysts," adding, "In this situation, from the perspective of outsourced managers, the investable universe is limited."
According to Yuanta Securities Korea, only 111 KOSDAQ-listed stocks are recommended as top picks by two or more securities firms. DB Financial Investment also analyzed that only 301, or 17.3% of the total, are corporations for which three or more institutions provide earnings forecasts.
Seol Tae-hyun, an analyst at DB Securities, said, "There are relatively few ETFs that hold only KOSDAQ names," adding, "However, in the case of theme ETFs tied to certain industry groups listed on KOSDAQ—such as biotech, games, and components-materials-equipment—some have a high share of KOSDAQ corporations."