Left out of the rally, hit harder in the selloff: Kosdaq investors count their losses

Kospi surged 77.6% while Kosdaq fell 1.5%

Kosdaq dropped more sharply than Kospi in the recent market rout

All major Kosdaq active ETFs are in the red — 'not an easy market to outperform'

"Left out when markets rose, and hit harder when they fell." That one line captures what Kosdaq investors have lived through this year. The index has stayed below its end-of-last-year closing level and, during the recent sharp selloff, fell further than the Kospi. Securities industry analysts say the divergence reflects gains concentrated in a small number of large-cap Kospi names — chiefly Samsung Electronics and SK Hynix — while the Kosdaq's sheer number of listings and wide return gaps between individual stocks kept the rally from spreading.

Korea Exchange data show the Kosdaq closed at 911.39 on Monday, down 1.52 percent from its last trading day close of 925.47 at the end of last year. That stands in sharp contrast to the Kospi, which surged 77.60 percent over the same period, climbing from 4,214.17 to 7,484.41. Even as the broader market earned a reputation as a bull run this year, Kosdaq investors were largely watching from the sidelines.

When the selloff came, Kosdaq investors absorbed a bigger blow. Circuit breakers were triggered across both markets on Monday, but the Kosdaq's decline was steeper — falling 9.08 percent while the Kospi dropped 8.29 percent.

Number of Kosdaq stocks up and down since the start of the year [Korea Exchange]

More painful than the index itself is the scorecard at the stock level. More than seven in 10 Kosdaq-listed companies have fallen since the start of the year. Korea Exchange data show that 1,286 of the 1,799 listed Kosdaq stocks — 71.5 percent of the total — are down from their year-opening levels, while only 460 have gained. The Kospi tells a similar story: declining stocks numbered 630 against just 300 gainers, underscoring how narrowly this year's rally has been concentrated among a handful of large caps.

Analysts point to the Kosdaq's structural features as the root cause of its underperformance: too many listings, too few large caps. As of Monday, the Kosdaq had 1,823 listed stocks — roughly twice the Kospi's 948 — yet its total market capitalization of around 510 trillion won (approximately $330 billion) amounts to just 8 percent of the Kospi's 6,132 trillion won.

Another structural weakness is that the Kosdaq 150 index captures only a fraction of the broader market. The index's combined market capitalization stands at 278 trillion won, or 54.5 percent of the total Kosdaq market cap. By comparison, the KOSPI 200 accounts for 93.1 percent of the Kospi's total market cap at 5,710 trillion won. Because the Kosdaq 150 covers barely half the market, fund managers face an inherently harder task when trying to mirror overall market trends or pick stocks capable of generating excess returns.

"The Kosdaq is a market where even running an active ETF is difficult, given the sheer number of stocks and the wide gaps in performance between them," a securities industry official said. "A number of active ETFs launched this year but failed to deliver the returns investors hoped for, and attention has ultimately gravitated toward a small group of large caps — Samsung Electronics, SK Hynix — and related leveraged ETFs."

Korea Exchange data confirm the trend: KoAct Kosdaq Active, TIME Kosdaq Active, PLUS Kosdaq 150 Active, MIDAS Kosdaq Active and TIGER Kosdaq Active — the main Kosdaq active ETFs — have all posted negative returns since their launches. The products came to market in step with the government's Kosdaq revitalization policy but have so far fallen short of expectations.

Some analysts, however, see room for a Kosdaq rebound. The government has been rolling out a series of Kosdaq revitalization measures, and policy-backed funds — including the National Growth Fund — have begun channeling money into the market in earnest.

"The Kosdaq is experiencing its most severe underperformance relative to the Kospi on record this year," said Yoon Jae-hong, a researcher at Mirae Asset Securities. "If the National Growth Fund inflows, expanded pension fund investment and Kosdaq revitalization policies gain full momentum, we can expect a meaningful improvement in the supply-demand environment."

He added that structural reforms are also under way, including tighter delisting requirements and a review of a promotion-and-relegation system between the Kospi and Kosdaq. "The door is open for a reappraisal of the Kosdaq market, which has been overlooked for so long," he said.

hajun825@heraldcorp.com