Keeping pace with the government's strong "revive KOSDAQ" push, retail investors' buying of KOSDAQ exchange-traded funds (ETFs) is serving as a driving force for the market. The securities industry is also lending support, projecting an upward trend in the index on expected policy benefits.
According to the Korea Exchange (KRX) market data system on the 23rd, institutions made net purchases of 11.172 trillion won in the KOSDAQ market over the past month (Jan. 20 to Feb. 20). During this period, the KOSDAQ index rose more than 18%.
This sharp rally is analyzed to have been driven more by retail net purchases of ETFs than by pension funds. Pension funds recorded net sales of 118 billion won during the same period, but financial investment firms within institutions scooped up 11.955 trillion won. When individuals buy ETFs, the liquidity provider (LP) purchases the ETF's constituent stocks in the market during creation and redemption, and this volume is recorded under financial investment flows.
In particular, ETF-driven inflows were more pronounced in the KOSDAQ market than in the main board. Over the same period, financial investment net purchases on the main board totaled 8.526 trillion won, far short of the KOSDAQ market's 11.955 trillion won.
Rising expectations for the government's "revive KOSDAQ" policy appear to have led retail investors to increase investments via ETFs.
In fact, according to Koscom's ETF Check, the top two ETFs most heavily bought on a net basis by retail investors over the past month were KODEX KOSDAQ150 and KODEX KOSDAQ150 Leverage. Retail investors purchased more than 5 trillion won of the two ETFs.
First, the government revised fund management evaluation guidelines to urge pension funds to increase investments in KOSDAQ. Market cleanup to weed out distressed companies is also gaining speed. Financial authorities will newly add penny stocks priced below 1,000 won as a delisting criterion and move up the schedule for raising market cap thresholds. The Korea Exchange (KRX) said it will set up a "focused delisting management team" to swiftly remove distressed companies from the KOSDAQ market.
In the securities industry, optimism prevails that the KOSDAQ market still has ample room for index gains. Analysts say government stimulus and liquidity conditions will work together to extend a rally that narrows the performance gap with the KOSPI.
Lee Jaeman, a Hana Securities researcher, said, "Considering rising liquidity at home and abroad, the domestic stock market still appears to have strong potential for further index gains."
Attention is also turning to the regular rebalancing in March of the KOSDAQ market's large-, mid-, and small-cap indices. Jeon Gyun, a Samsung Securities researcher, said, "Due to the surge in the KOSDAQ market since the start of the year, more than 20 stocks are expected to be newly added as KOSDAQ large caps," adding, "Many names such as Wonik Holdings and Hyundai Movex, Orum Therapeutics and SPG are likely to be upgraded from existing mid caps."
The number of stocks newly added to KOSDAQ150, the index tracked by most KOSDAQ ETFs, is also expected to increase. Jeon said, "In particular, among the stocks newly added to KOSDAQ large cap, those not yet included in KOSDAQ150 have a high probability of being newly added in the KOSDAQ150's regular rebalancing scheduled for June," adding, "For KOSDAQ150, where passive money is likely to flow in, expectations for benefits could continue through June."
With strong retail interest in KOSDAQ ETFs, the asset management industry is preparing to launch KOSDAQ active ETFs. Timefolio Asset Management is expected to list a KOSDAQ active ETF in early to mid next month.