Gov’t works to bolster Kosdaq
With different tax breaks aimed at attracting more investment in the market, the Moon Jae-in administration has made bolstering the Kosdaq a key component of its economic agenda.
Besides the tax benefits, the government set a bolder goal earlier this month, saying that it aims to have the National Pension Service (NPS), the country’s largest institutional investor, allocating 10 percent of its domestic investment fund to the Kosdaq. The current level is around 2 percent, according to data submitted to the National Assembly in October.
While proponents see that such moves are necessary to support the tech heavy index suffering heavy short sales and rumor-driven volatility, critics say that it could distort the market.
The NPS kept itself distant from the announcement, saying that it has no plan to expand its Kosdaq investment this year.
The Ministry of Strategy and Finance acknowledged that it is unable to force the pension fund to adjust its investment portfolio but could nudge them into doing so.
“The 10 percent objective is more the government’s goal and we don’t have any authority to push the NPS to increase investment,” said Kang Gi-ryong at the Finance Ministry.
“But we can encourage them by giving extra credit to pension funds investing in Kosdaq-listed companies when the government assesses their asset management performances,” he said.
The government wants to bring in institutional investors because the Kosdaq market is heavily dependent on retail investors with 87.4 percent of transactions coming from them. Retail investment is typically short-term and vulnerable to market fluctuations. Foreign investors account for 7.2 percent while institutions including pension funds take up 4.4 percent as of October, according to the Korea Exchange.
The short sale forces and apparent lower valuations often prompt top stocks on the junior index to move to the main bourse Kospi.
Shareholders of the biopharmaceutical firm Celltrion, the largest company by capital listed on the Kosdaq, voted to move to the main index in September to squash short-sellers and enhance the stock’s valuations.
The investors had long appealed that they fall victim of short-sale investors who make bets on the drastic fall of stock prices.
Professor Jang said that institutional investors could ease the risks associated with retail investors since the individuals could have more opportunities for indirect, less risky investment through fund products provided by larger institutions.
The latest rally on the smaller bourse also reflects the market’s anticipation of the government measures, said Yi Byung-hwa, an analyst at KB Securities.
“The Kospi went down after the dotcom bubble,” he explained, “it remains to be seen how the measure will unfold, but the expectations play into the market.”
Still, others take a more cautious approach.
“The previous administrations churned out different measures to boost the Kosdaq, but it didn’t turn out well,” said Yun Chang-hyun, an economics professor at University of Seoul.
“The pension funds’ investment should be done in a way that maximizes return - not in a way that follows through a certain government’s objectives,” he said.
BY PARK EUN-JEE [email@example.com]