Kosdaq policies fall short of hype

The government’s ballyhooed initiative to strengthen the Kosdaq, the smaller of Korea’s two major stock indexes, fell short of expectations Thursday as it unveiled policies that would not take effect until as late as the year’s end and were light on the details.

At the core of the measures was the creation of a new index, tentatively dubbed KRX300, to track both the larger Kospi and Kosdaq.

The new index, set to launch on Feb. 5, will be composed of 68 Kosdaq stocks and 232 Kospi companies, weighing market capitalization and trading values.

In response to concerns that the new index would be tilted toward large-cap bio stocks on the Kosdaq, a director at the Korea Exchange said it would try to diversify the index with different industries.

“We acknowledge the concern, so we will identify nine sectors and make the index a wide set of stocks from those sectors,” said Lee Seung-beom, director general at the index business department of the Korea Exchange.

The Financial Services Commission expects the KRX300 to become a reference benchmark, but analysts struck a more skeptical note.

“Investors expected specific measures to support the development of futures and options based on the KRX300, but the announcement didn’t contain any details in that regard,” said Kim Dong-young, an analyst at Samsung Securities. “Developing an index alone is not enough to scale up the capital market as was the case with the KTOP30 index.”

Another incentive includes an exemption from a securities transaction tax when pension funds engage in arbitrage trading on the Kosdaq. Arbitrage refers to the practice of taking advantage of a price difference between two or more markets, typically between spot and futures markets.

But the deduction of 0.3 percent is not expected to go into effect until the second half of the year, a letdown for investors who expected more immediate market impact.

“The biggest problem with the announcement is that major policies will be implemented by the end of this year,” said Lee Jung-ho, an analyst at KB Securities.

The Financial Services Commission will allow a 10 percent tax deduction for individuals investing in a venture capital trust. The maximum investment for the benefit is 30 million won.

The Korea Exchange, Korea Securities Depository and other market-related government bodies will create a 300 billion won fund to invest in Kosdaq-listed companies. The fund will pump money into Kosdaq stocks considered to be undervalued.

To bring more players into the junior bourse, the Financial Services Commission will lift two listing requirements: positive cash flow from operating activities and having no impaired capital.

A committee dedicated to the Kosdaq will gain more independence and regulatory discretion with the head of the committee set to be recruited externally.

Market observers have noted that the Kosdaq Committee under the Korea Exchange lacks independence and as a result lacks a sufficient budget and regulatory support compared to the Kospi.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]