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KOSDAQ and KONEX Shunned by Investors Despite Government Support
SME, Venture Financing
KOSDAQ and KONEX Shunned by Investors Despite Government Support
  • By matthew
  • December 2, 2013, 06:55
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The Korea New Exchange (KONEX) was launched in July this year in an effort to foster the Creative Economy, but has not been vitalized.
The Korea New Exchange (KONEX) was launched in July this year in an effort to foster the Creative Economy, but has not been vitalized.

 

Immediately after the inauguration of the Park Geun-hye administration, investors had very high expectations for the KOSDAQ’s mid and small-cap stocks. However, things are far from favorable for the tech-heavy market with the end of the year around the corner. The index and trading volume have shown little growth from the previous year, while 30% of the firms listed on it remain in the red. The number of newly-listed firms stands at just 24, 13 less than during the 2008 global financial crisis. 

Institutional Investors Not Interested in KOSDAQ

According to capital market experts, the situation is attributed to disinterest on the part of local institutional investors, which have investment portfolios revolving around those with higher market capitalization. 

Under the circumstances, little information is provided as to KOSDAQ-listed companies. Financial information provider FnGuide’s data shows that 75.73% of the 28,101 reports issued this year on the companies listed on the local stock market were about KOSPI companies. 

The story is not that different in the performance forecast, either. At least three local securities firms have provided performance estimates for 193 out of the 728, or 26.51%, KOSPI companies, whereas the percentage is just 11.69%, 117 out of 1,001, in the KOSDAQ market.

“The number one customer of the reports published by research centers is institutional investors,” said a market insider, adding, “As such, securities firms find no reason to issue reports on KOSDAQ firms at their own cost, with the institutional investors paying little attention to them.”

The Korean government launched the Korea New Exchange (KONEX) in July this year in an effort to foster creative economic activities, but it is showing little progress as well due to its high dependence on institutional investors. The purpose of the new stock exchange is to help more firms be listed on the KOSDAQ through investment by institutional investors, but those listed on the KONEX are having a hard time selling themselves. 

Market Order Must Be Restored in KOSDAQ

Another problem of the KOSDAQ is that it is highly vulnerable to price manipulation attempts because of the lack of analyses based on objective data. It is in this context that the government has recently declared that it would take stern action against such attempts. The government also stated that it would grow the KOSDAQ and KONEX into major financing channels for small and mid-size enterprises. 

At present, the largest shareholder of Celltrion, the company with the biggest market cap in the KOSDAQ, is under investigation for price manipulation allegations. Ssangyong Engineering & Construction, in the top five in the market cap, has been in a trade break for over six months due to encroachment of capital. This is why many experts are claiming that the market order be restored first for proper functioning.