As the extreme tilt toward large semiconductor stocks eased, the KOSDAQ market is showing signs of recovery. Analysts said overheated speculative funds, such as leverage ETFs, have receded, warmth is spreading to previously neglected non-semiconductor growth stocks, and a rotation-driven market has kicked into full gear.
According to the Korea Exchange (KRX) on the 10th, the KOSDAQ index, which had fallen to 644.78 on the 30th on the previous month, closed at 798.81 on the 7th this month, surging 23.9% in a little over a week.
In the KOSDAQ market, a buy-sidecar (temporary halt of program-trading buy quotes) was triggered for three straight sessions on the 31st on the previous month and the 3rd to 4th this month. With the number of gainers far outpacing losers, the weekly advance-decline ratio (ADR) also topped 100% for the first time in about three months.
In the securities industry, the main reasons for this rebound are cited as reduced transaction value in single-stock leverage ETFs and a decline in margin balances, easing volatility. This follows the financial authorities raising the basic deposit for single-stock leverage ETFs from 10 million won to 30 million won starting on the 31st on the previous month and abolishing the recognition of substitute securities, effectively raising entry barriers.
On July 31, the first day the rules took effect, total transaction value for 16 single-stock leverage and inverse ETFs was 3.3071 trillion won, down 75.3% from the previous day (12.4485 trillion won).
Kang Jin-hyeok, a researcher at Shinhan Investment & Securities, said, "In the KOSDAQ market recently, the tilt toward leverage has eased, with reduced transaction value in single-stock leverage ETFs and a decline in margin balances," adding, "Although panic selling occurred excessively during last month's intense deleveraging (liability reduction) centered on the semiconductor sector, bargain-hunting is flowing in rapidly amid a supply-demand vacuum."
In particular, small and mid-cap growth stocks related to healthcare, robots, secondary batteries, and materials, parts and equipment (small but essential sectors) posted strong gains of around 15% to 30% from recent lows, powerfully leading the index rebound.
Alteogen, a top KOSDAQ market-cap name, rebounded more than 20% from its recent low on the back of technology transfer momentum, while robot names such as Rainbow Robotics(277810) and key secondary-battery stocks such as EcoPro BM also rose in the 10% to 20% range.
On the supply-demand side, strong net buying by institutions drove the KOSDAQ higher. From July 30 to Aug. 7, individuals net bought 9.9 billion won, staying on the sidelines, while institutions purchased 814.2 billion won, leading supply-demand. Funds flowed evenly across institutions, including investment trusts (305.8 billion won), private equity funds (204.5 billion won), financial investment (195.1 billion won), and pension funds (84.8 billion won). Over the same period, foreigners net sold 868.6 billion won.
With the excessive KOSDAQ decline largely recouped, some expect the market to shift into a full-fledged, selective, stock-picking phase. The space left by the easing tilt toward large caps appears likely to be filled by small and mid-cap growth stocks in pharmaceuticals and biotech, robots, and secondary batteries that have earnings strength and momentum.
Lee Seung-hun, head of research at IBK Securities, analyzed, "As declines in semiconductor stocks became excessive, many investors suffered losses, and as conviction in semiconductors weakened, that shift of attention to other sectors was reflected."
Lee said, "This is both a technical rebound phase after a short-term plunge and a stage where tangled supply-demand factors are being resolved," advising, "It is still difficult to see clear momentum leading from the perspective of earnings or fundamentals, so it is necessary to watch the market a bit longer and confirm the trend for the time being."
The government's KOSDAQ market-structure overhaul is also a point to watch. With delisting standards tightened recently, including higher market-cap requirements, the KOSDAQ "promotion and relegation system (introduction of a premium segment)" to be implemented starting next year is seen as a momentum driver that could improve the market's structure.
Kwon Beom-seok, a researcher at Samsung Securities, said, "With KOSDAQ currently below the 120-month moving average, the present price zone is very attractive for long-term investors," adding, "As the tilt in supply-demand eases due to regulation of single-stock leverage ETFs and with positive policy momentum such as stronger delisting criteria and the introduction of a promotion and relegation system, it is time to focus on the potential for a KOSDAQ rebound based on fundamentals improvement."
The "KOSDAQ promotion and relegation system," which will be fully launched starting next year, will divide and manage the KOSDAQ market into three tiers according to corporations' growth stage and financial soundness: ▲premium segment ▲standard segment ▲watchlist. The goal is to designate top-quality, large-cap companies with strong financials and growth potential as the "premium segment" and to develop a dedicated index and attract institutional and foreign funds.
The securities industry expects that once the KOSDAQ promotion and relegation system is introduced, passive funds and institutional inflows will concentrate in representative stocks with solid fundamentals and large market capitalization.