Warmth is returning to the KOSDAQ market, which had been left out of the KOSPI rally, with the launch of the Public Growth Fund designed for broad public participation. Foreign capital is also flowing into tech stocks such as semiconductors, robots and biotech, boosting expectations. However, some in the securities industry say the recent gains appear to be a short-term overheating (overshooting), citing differences in industry structure with KOSPI and high valuations.
According to the Korea Exchange (KRX) on the 26th, the KOSDAQ index surged nearly 5% for two straight days starting on the 21st, recovering the 1,170 level on the day. During this period, a buy-side sidecar, which suspends the effectiveness of program buy orders for five minutes, was triggered for two consecutive days.
Behind the KOSDAQ surge is the Public Growth Fund. The government plans to create a 150 trillion won Public Growth Fund over the next five years and supply 30 trillion won this year. Of this, the public participation tranche totals 720 billion won and is designed to invest at least 30% of the funds in unlisted corporations and KOSDAQ technology special-listing companies. By contrast, the KOSPI investment share is capped at 10%, making the structure overwhelmingly favorable to KOSDAQ tech stocks.
Jo A-in, a Samsung Securities researcher, said, "The direct supply-demand impact may be limited, but we can expect an improvement in investor sentiment given it is five-year locked-in capital."
Foreign flows are also showing a shift into KOSDAQ. Foreign investors have been net sellers in the main board for 12 consecutive trading days, offloading more than 40 trillion won so far this month, but over the same period they were net buyers of more than 2.62 trillion won in the KOSDAQ market. Among the top net buys by foreigners were FADU (341.7 billion won), Rainbow Robotics (162.1 billion won) and ABL Bio (141.1 billion won), with AI, robotics and biotech names topping the list. Funds taking profits in large-cap semiconductor stocks such as Samsung Electronics and SK hynix have moved into KOSDAQ growth stocks.
Still, structural limits in KOSDAQ remain. While the KOSPI index's gain has exceeded 80% this year, KOSDAQ's rise has stayed in the 20% range. According to Samsung Securities, the relative performance gap between KOSPI and KOSDAQ indexes is more than 6.6 times, the widest on record. In a semiconductor-led market, the weight of the electrical and electronics sector in KOSPI reaches around 60%, but KOSDAQ is in the 20% range. Analysts say KOSDAQ faces structural limits that make it hard to match KOSPI returns during an AI infrastructure investment upcycle.
Valuation (price level relative to earnings) pressures are also noted. The 12-month forward price-earnings ratio (PER) of KOSDAQ-listed companies is around 27 times. The diagnosis is that policy expectations have been priced in before earnings improvements are sufficiently confirmed. Given KOSDAQ's high share of growth stocks, its vulnerability to interest rate volatility remains a burden.
The securities industry expects structural reforms in the KOSDAQ market to have positive medium- to long-term effects. Financial authorities are pushing a league system overhaul that divides the KOSDAQ market into premium, standard and watchlist tiers, and policies to tighten the delisting of weak corporations. There is an expectation that if market credibility improves, the foundation for inflows of institutional and foreign funds could expand.
That said, many view the recent KOSDAQ strength as a technical rebound centered on stocks that had fallen too much, rather than a turn to a sustained uptrend. Experts advise a selective approach focused on AI, robotics and biotech stocks with a high likelihood of real earnings improvement.
Lee Jae-won, a Yuanta Securities Korea researcher, said, "In semiconductors, earnings improvement is being confirmed by 'numbers' such as export data and DRAM prices," and added, "For the KOSDAQ market to move into a long-term uptrend, substantial disclosures, such as technology transfer by top market-cap biotech corporations, must back it up."