Dow Kim
The Korea Exchange announced on July 6 that 30 blue chip stocks, including Samsung Electronics, Amore Pacific, Naver, Hyundai Motor Company, and LG Chem, were selected as the components of the KTOP 30, which will be the Korean equivalent of the Dow Jones Index. The KTOP 30 will make its debut on July 13. Six subsidiaries of the Samsung Group are included in it, along with three from SK and two from LG.
At present, the KOSPI is the index that represents the Korean stock market. However, it has been pointed out that it is rather heavy, and does not reflect the growth potential of the Korean economy, because it covers 760 listed companies. According to the Korea Exchange, Korea’s current GDP is 36 times that of 1980, and more than seven times that of 1990, while the current KOSPI is 19 times that of 1980 and today’s KOSPI 200 index is 2.5 times what it was 15 years ago. This is why the Korea Exchange picked out 30 stocks in view of non-quantitative factors such as market and economic representativeness, investor accessibility, and sustainability. In calculating the KTOP 30 index, the Korea Exchange set Jan. 3, 1996 as the reference date and looked into its movement until May this year. During the period, this index showed a seven-fold increase from 889 points to 6,290 points, whereas the KOSPI as a whole moved up from 889 points to 2,115 points.
The aggregate market value of the 30 stocks is 609 trillion won (US$538 billion), equivalent to 45 percent of the total market cap. Their average price is 200,000 won (US$176.84), 130 percent of that of the KOSPI 200 stocks. Their daily average trading amount is 62.5 billion won (US$55.3 million), whereas that of the KOSPI 200 is approximately 18 billion won (US$15.9 million). The number of tradeable KTOP 30 shares is 118 million. Exactly 32.4 percent of the shares are IT stocks, and the KTOP 30 and the KOSPI 200 have similar ratios by sector.
Samsung Electronics accounts for 12.9 percent of the index, followed by Naver (12.1 percent) and Amore Pacific (8 percent). Samsung Heavy Industries represents the least of it, 0.4 percent. Two KOSDAQ stocks – Celltrion and Daum Kakao – are also included in it. The Korea Exchange calculated the index based on not the market cap but the stock price averages, as in the Dow Jones Index, so that it can reflect the components evenly. “Investors can easily predict the effect of stock price movements on the index since the components have similar stock price levels,” it explained.
Those priced at 500,000 won (US$442.11) or more per share were excluded from the index, with the only exception of Samsung Electronics. This was because the representativeness of the index could be significantly reduced without Samsung Electronics. A coordination factor of 0.5 is applied to its stock price, though.
Market participants are expecting that the new index will lead to the expansion of other markets such as that of derivatives, while continuing to grow to represent the Korean economy and stock market. “When the liquidity in the derivative market increases based on the exemption of the transfer income tax on the derivatives using the KTOP 30, more index funds, ETFs and the like following the components or the index itself will be able to be seen,” one of them said.