KOSDAQ Market

The long short fund strategy and the resignation of fund managers in charge of the analysis of small and mid-cap stocks are pointed out as two of the reasons for the recent downward spiral of the KOSDAQ. 

The KOSDAQ index lost 4.51 points, or 0.90%, on December 10, to close at 497.72 points. This is the first time since June 26 this year that the 500 point mark is broken. Institutional investors sold 4 billion won (US$3.8 million) worth of shares to lead to downward movement. The index has continued to fall this month from the 517.05 points recorded on November 29. 

Some industry sources are mentioning the long short funds and Korean hedge funds, whose popularity is on the rise these days, as the reason. According to their analysis, the funds are exercising a short strategy targeting at some small and mid-cap stocks to drag down the index. Specifically, they are said to sell (short), promising small and mid-caps by borrowing them from pension funds, institutional investors, and individuals and then purchase (long) them again at lower prices to return them and make some profits. 

Rumors about the resignation of local fund managers dealing in major small and mid-caps is regarded as another negative factor against the investor sentiment. Although many of the rumors have turned out to be groundless, it is only after investor sentiment has been affected. 

Other market watchers are saying that the KOSDAQ’s downturn is due to tax issues. According to the tax law revised this year, those who own 4% or more of shares in a KOSDAQ-listed company or a market capitalization of four billion won or more are classified into major shareholders who are subject to taxation for their stock transfer gains. It is expected that the investors likely to fall into the group will dispose of their shares before the end of this year. 

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