KOSDAQ Falls Below 800, KOSDAQ Active ETF Returns Plunge

KOSDAQ Falls Below 800 for the First Time in 10 Months
KOSDAQ Active ETFs Post Double-Digit Declines
KOSDAQ Weakness Unlikely to Ease Anytime Soon

The downturn in the KOSDAQ has been deepening. The index fell below the 800 mark for the first time in 10 months, settling at the 780 level. As the KOSDAQ continues to struggle, the much-anticipated KOSDAQ active exchange-traded funds (ETFs) that have been launched one after another this year are also failing to escape poor performance.

According to the Korea Exchange on July 9, the previous day, the KOSDAQ Index closed at 785.0, down 5.56% from the previous session. This is the first time in about 10 months, since September last year, that the KOSDAQ has closed below the 800 mark. The KOSDAQ has dropped more than 14% so far this month. After falling below the 1,000 mark on June 19, it subsequently broke through the 900 and now the 800 levels.

As the KOSDAQ’s weakness persists, KOSDAQ active ETFs have also recorded double-digit negative returns. Over the past week, the MIDAS KOSDAQ Active ETF dropped 25.93%, while TIME KOSDAQ Active (-25.65%), KoAct KOSDAQ Active (-24.01%), PLUS KOSDAQ150 Active (-22.99%), and TIGER KOSDAQ Active (-22.20%) all plunged more than 20%. During the same period, the KOSDAQ index itself fell by 15.53%, meaning that KOSDAQ active ETFs underperformed the market by a significant margin. Despite being products where managers actively adjust holdings and weights in pursuit of excess returns—unlike passive ETFs that simply track the index—they were unable to outperform the market.

When the first-ever KOSDAQ active ETF was launched in March this year, it attracted a surge of funds from retail investors seeking differentiated returns, and its net assets soared for a time. However, even the active management of these ETFs could not withstand the extreme concentration seen in the market. As the KOSDAQ’s leading stocks by market capitalization—such as those in bio, secondary battery materials, and robotics, which ETFs had heavily allocated to—performed poorly, KOSDAQ active ETFs failed to defend against the index’s decline and are now posting double-digit losses.

Even as the KOSPI broke through the 9,000 level and posted record gains this year, the KOSDAQ was relatively neglected, showing signs of decoupling. More recently, as the KOSPI has struggled amid heightened volatility, the KOSDAQ has instead moved in sync with it, also showing weakness. Jaewon Lee, a researcher at Yuanta Securities, explained, “The KOSDAQ’s slump is due to the outflow of retail funds, which had been a long-term net buying force, while the KOSPI’s earnings estimates are being revised upward, led by the semiconductor sector. By contrast, the pace of earnings improvement in the KOSDAQ remains limited. In addition, after signals of interest rate hikes, the KOSDAQ, with its high proportion of growth stocks, is more vulnerable to rising discount rates. Historically, whenever the Bank of Korea shifted from a rate cut or freeze stance to a hiking phase, the KOSDAQ underperformed the KOSPI. Currently, in terms of supply and demand, earnings, and interest rates, all three factors continue to favor the KOSPI.”

There is analysis that the KOSDAQ’s poor performance is more attributable to market concentration than to fundamentals. Junyoung Kim, a researcher at iM Securities, stated, “The KOSDAQ’s weakness is often cited as evidence of its weaker fundamentals compared to the KOSPI, but market concentration is also a major factor.” He added, “Within the KOSPI, the concentration in the so-called S7 (Samsung Electronics, SK hynix, SK Square, Samsung Electronics Preferred, Samsung Electro-Mechanics, Samsung Life Insurance, and Samsung C&T) has been strong. If you exclude the S7 from the KOSPI, the combined market capitalization has moved similarly to that of the KOSDAQ.”

It appears unlikely that the KOSDAQ will see a sustained upward trend until the concentration in the market is resolved. Kim further noted, “In early June, there was a brief rotation into the KOSDAQ during the correction of large-cap KOSPI stocks, but it did not mark a turning point in the overall trend. For the time being, the concentration in leading stocks is likely to persist.”

This content was produced with the assistance of AI translation services.