Small Kosdaq has its growing pains

The minor Kosdaq market fell below 500 for the second consecutive day yesterday as investors increasingly turn away from betting on small businesses. Even before the index went below 500 for the first time in about six months on Tuesday, the country’s secondary market had not seen significant positive momentum. Fund managers note three major difficulties: lack of liquidity, poor business results and investment loss.

Yesterday, the Kosdaq index closed at 494.78, which was 0.59 percent lower than the previous day. On Tuesday, the index fell almost 1 percent to close at 497.72. The last time the Kosdaq was at the 400 level was June 26.

“Ever since the Kosdaq reached a yearly record high on May 29 [585.69], the index has dropped more than 15 percent,” said Song Jae-kyung, a researcher at KTB Investment and Securities. “The major reason behind the drop is the sluggish information technology industry outside of semiconductors.”

IT-related shares, which account for a huge share of market capitalization and earnings at IT-related companies, have remained sluggish lately.

Analysts also note the Kosdaq market has been isolated in the second half of this year as foreign investors turned to large-cap shares on the Kospi market. And next year will not be much better, they say.

With the falling index, financial consumers that have invested in small shares have seen their value drop in the past three months. Daishin Asset Management, for example, introduced a fund product that invests in shares of small and midsize companies, and the profit rate so far is minus 3.6 percent. Also, the three-month profit rate of a fund introduced by KB Securities and Investment is minus 0.85 percent, while its three-month rate is minus 1.51 percent.

“The index keeps falling, and there is not enough liquidity in the market,” said Suh Jae-hyung, head of Daishin Asset Management. “What’s important for investors in the Kosdaq market is to find the right individual stocks for investment rather than sectors.”

Industry experts note that it is unlikely that the minor market will gain steam in the first half of next year.

“Investors’ sentiment has contracted, especially after issues broke out about how the government is enhancing regulations in the capital market and tax investigations,” said Jung Hoon-seok, an official from Korea Investment and Securities. “The March-to-May period, when companies report their first quarter earnings, will be a turning point for the Kosdaq market for the remainder of the year.”

Some experts note that investors will see an opportunity to profit in the second half of 2014.

“When the benchmark Kospi index maintains an upward trend with recovery in the global economy stabilizing, this can create positive investor sentiment even in the Kosdaq market,” said Kim Seung-hyun, an analyst at Daishin Securities.

Sohn Se-hoon, an official from Woori Investment and Securities, echoed that view, saying shares next year of IT components will gain ground with a number of new smartphones being introduced in the market.

BY LEE EUN-JOO, HONG SANG-JI [angie@joongang.co.kr]