Kosdaq marks 20 years of dynamic highs, lows
The fashion company Codes Combine was almost knocked out of the Kosdaq after it applied for court receivership last year. Trading of the company’s shares resumed in February of this year but it is under close surveillance as a potential candidate for delisting as it has struggled with a deficit for four straight years.
Despite its unfavorable status the company’s stock value surged from 20,000 won per share to 180,000 won in March, which helped boost Codes Combine to be the second-largest company on the junior market by market capitalization.
The heat, however, quickly dropped and in just 10 days the share value was halved, leaving massive loss from retail investors, who bought the company’s share late.
These are a few of the dynamic incidents that have occurred on the nation’s tech-heavy junior market, which will be celebrating its 20th anniversary today.
The Kosdaq, which was created in benchmarking the U.S. Nasdaq, has played a vital role as a platform for the nation’s economy that helped small and medium start-ups get funding that they needed. However, some have said that the biggest limit of the Kosdaq is that despite the growth the market has enjoyed, central investors on the secondary market are local retail investors.
According to Korea Exchange, the nation’s sole stock market operator, the total market capitalization on the Kosdaq market amounts to 206.9 trillion won. That’s 27 times the size when the market was launched in 1996. During the same period, the market capitalization of the primary Kospi market has expanded by nine times.
Daily transactions on the Kosdaq market as of last month were 3.3 trillion won. When it first launched two decades it was only 2 billion won. The quality of the stocks that are traded on the secondary market has diversified as well. At opening, most of the stocks on the Kosdaq were those of telecommunication companies and IT. The top five companies by market capitalization were Hantong Freetel, Hansol PCS, Hanaro Telecom, Serom Tech and Hangul and Computer.
Today, it is a mixture of biopharmaceutical companies, health care and cultural content developers. Today, the top five companies are biopharmaceutical developer Celltrion, IT company Kakao, food and beverage company Dongsuh, entertainment company CJ E&M and biopharmaceutical firm Medytox.
The secondary market throughout the two decades has seen its ups and downs. In the early 2000s, thanks to the dotcom boom the index rose to a historic high of 2,834.40 on March 10, 2000.
However, when the bubble burst at the end of the same year, the junior market tumbled steeply, closing the year at 525.80. Because of the huge losses it inflicted on investors, the market lost its credibility and has been boxed in between 500 and 600.
The situation only got worse when the global crisis landed in Seoul as the market nosedived to 261.20 on October 2, 2008 as an aftershock of the global turmoil caused by the bankruptcy of Lehman Brothers.
Since 2009, the Korean stock exchange operator worked on regaining investors’ trust by tightening its evaluation on companies that will be listed on the market or those that were to be kicked out. It worked and the market started to see an increase of newly listed companies as well as larger investments rolling in since 2014.
The public offering investment has been on the rise for four consecutive years to 2.12 trillion won last year.
In its 20th year, the junior market plans to heighten its goal in helping start-ups gain a larger pool of investments.
In December, KRX opened a start-up support center and plans to launch a new market dubbed KRX Start-up Market (KSM) in September.
In addition, it will implement a fast track system so that companies traded on the smaller Konex, which also is celebrating its third anniversary today, to be upgraded to the Kosdaq.
It hopes to create an ecosystem where start-ups could expand by getting initial financing from crowdfunding then move up to the newly launched KSM, which will help it step up to Konex and finally to the Kosdaq.
“We believe that we have improved the Kosdaq by 80 percent,” said Kim Jae-joon, Kosdaq Market CEO. “Kosdaq will set itself as a market for small and midsize start-ups with potential growth technologies.”
However, the secondary market is still easily shaken even at small shocks.
In April 2015, the Kosdaq index tumbled more than 5 percent after health product developer Naturalendo Tech was swirled in a controversy, hit by allegations that its main health care product was fake.
The weakness of the market was believed to have been the result of high ratio of retail investors compared to foreign and institution investors. In fact, last year 88.5 percent of the investors buying and selling stocks on the Kosdaq were retail investors. Additionally Kosdaq still struggles from an image that it is a minor market compared to Kospi.
“The Codes Combine situation in March was caused because Kosdaq is relatively smaller than major advanced capital markets,” said Hwang Se-woon, a researcher at the Korea Capital Market Institute.
“There is a need to strengthen the information of the companies that are traded on the Kosdaq to build stronger credibility while attracting more foreign and institutional investors.”
BY LEE SEUNG-HO, LEE HO-JEONG [firstname.lastname@example.org]