[Created using Gemini]
[Created using Gemini]

Kosdaq turns 30 on Wednesday, but instead of fanfare, a sense of crisis hangs over the market. While an AI semiconductor rally has driven the Kospi sharply higher this year, Kosdaq has been left almost entirely behind — its total market capitalization, which stood at around 500 trillion won ($324 billion) at the end of last year, has slid back into the 400 trillion won range.

Thirty years after launching with dreams of becoming "Korea's Nasdaq," the market has grown in the number of listed companies, but frequent wild swings have kept it from earning lasting investor trust. Critics say only sweeping structural reform can put Kosdaq on a path worth celebrating for the next 30 years.

According to Korea Exchange, the combined market capitalization of Kosdaq-listed companies, which stood at around 505 trillion won at the end of last year, had fallen to 478 trillion won as of Friday — a drop of more than 27 trillion won.

Thursday and Friday marked the first time this year that Kosdaq's total market cap had fallen into the 400 trillion won range.

The Kosdaq index, which had once broken above the 1,200 level, gave up the 900 line after a series of sharp swings this month. Compared with the end of last year, the index was actually down 8 percent through Friday. The Kospi, by contrast, surged 99.59 percent over the same period.

Perhaps more stinging is that Kosdaq has now been overtaken by the exchange-traded fund market. As of Thursday, the total net assets of domestic ETFs approached 520 trillion won, comfortably surpassing Kosdaq's entire market cap. The ETF market first overtook Kosdaq on Tuesday.

Analysts point to an extreme concentration of capital in semiconductor stocks, driven by the dawn of the global AI era, as the central reason for Kosdaq's isolation. Market funds have been drawn into AI-beneficiary stocks, with liquidity concentrating almost exclusively in large-cap Kospi names.

In practice, the combined market cap of Kospi stocks outside the so-called "S7" — Samsung Electronics, SK hynix, SK Square, Samsung Electronics preferred shares, Samsung Electro-Mechanics, Samsung Life Insurance and Samsung C&T — has tracked closely with the Kosdaq index.

Should the semiconductor concentration ease, Kosdaq's heavy weighting in biotech could give it room to recover. However, analysts say a sustained uptrend remains premature given the still-elevated interest rate environment and the ongoing exodus of retail investors, who had long been the market's primary net buyers.

Weak fundamentals are also cited as a structural constraint. Frequent sharp swings, theme-driven trading, a persistent gap between earnings and share prices, and the coexistence of quality companies alongside troubled ones have long been identified as chronic ailments. Over the past 30 years, Kosdaq has achieved notable growth in the number and scale of listed companies, but market quality has failed to keep pace with that outward expansion.

The accelerating retail investor exodus this year lays bare how far confidence in Kosdaq has eroded. After net buying 7.09 trillion won worth of Kosdaq shares last year — providing a floor for the index — retail investors had net sold 9.87 trillion won through Friday. That stands in stark contrast to their behavior in the Kospi over the same period, where they net bought 93.74 trillion won.

"Kosdaq's underperformance is not simply a matter of being oversold," said Lee Jae-won, a researcher at Yuanta Securities Korea. "Retail investors, who had been the long-term net buyers, are pulling out, and the pace of earnings improvement in Kosdaq is limited." He added that relative underperformance is likely to persist until a return of retail investor flows and a rebound in earnings estimates can be confirmed.

Securities industry analysts say a structural shift is needed for Kosdaq to stage a lasting recovery — the market must improve in quality before capital will return.

"Kosdaq's next challenge is not listing more companies, but creating a structure where good companies receive higher valuations," said Kim Du-eon, a researcher at Hana Securities. "The key is a tiered segment system and stronger delisting of weak companies. In the short term it may create volatility, but over the medium to long term it will be a policy that reduces the Kosdaq discount."

Specifically, regulators are pursuing the delisting of so-called penny stocks trading below 1,000 won, public disclosure of low price-to-book-ratio listed companies, and the introduction of a tiered Kosdaq system. The plan is to raise market quality by delisting low-value penny stocks and to use disclosure of low-PBR companies to push individual firms to improve their own profitability. Kosdaq would also be subdivided into tiers — such as premium and standard — to separate quality companies from weaker ones.

However, the detailed criteria and implementation timeline for the tiered system have yet to be finalized. Some have raised concerns that ranking companies primarily on financial metrics such as market cap, sales and operating profit could leave innovative technology companies at a disadvantage.

With a qualitative reshaping of the market on the horizon, securities analysts expect stock-picking within Kosdaq to intensify. The AI theme that lifted the Kospi is still seen as relevant to Kosdaq as well, with companies deemed indispensable to the AI era expected to be revalued once the current correction runs its course.

"Kosdaq's next 30 years begin at the AI bottleneck," Kim said. "The bottlenecks of the AI era extend well beyond GPUs to encompass power, cooling, packaging, testing, materials, equipment, networking and data center infrastructure — and that is precisely where Kosdaq's opportunity lies."


jiyun@heraldcorp.com