KOSDAQ Slumped in July... Rising Hopes for a Turnaround in August [Weekend Money]

KOSDAQ Hit by Concentrated Trading in Single-Stock Leveraged ETFs
KOSDAQ Sentiment Improving Following Single-Stock Leveraged ETF Regulations

Last month, the trading volume on the KOSDAQ shrank to its lowest level in 11 months. The concentration of trading in single-stock leveraged Exchange-Traded Funds (ETFs) appears to have dealt a direct blow to the KOSDAQ market. However, as regulations on single-stock leveraged ETFs come into full effect this month, there is growing optimism that the KOSDAQ will gradually recover.

KOSDAQ Hit by Concentrated Trading in Single-Stock Leveraged ETFs

According to the Korea Exchange on August 8, the average daily trading value on the KOSDAQ market last month was 6.1 trillion won, the lowest since August of last year, when it was 5 trillion won — an 11-month low. Compared to June, when it reached 10 trillion won, this reflects a 40% plunge in just one month. Compared to the 15.5 trillion won recorded in May, the figure is now less than one-third.

As trading activity contracted, the turnover rate also declined. The turnover rate by market capitalization on the KOSDAQ last month was 30.4%, also the lowest in 11 months since August of last year. Stock turnover rate is an indicator that measures market liquidity by showing how many times listed stocks are bought and sold over a certain period.

The KOSDAQ Index also fell sharply. After hitting the yearly high of 1,229.42 in April, the index plunged to as low as 630 last month, nearly halving in just three months. Major sectors such as bio, secondary batteries, and semiconductor materials, parts, and equipment experienced significant declines across many stocks.

Experts analyze that the single-stock leveraged ETFs targeting Samsung Electronics and SK hynix, which were launched in late May, triggered the sharp decline in the KOSDAQ Index. Lee Jaewon, a researcher at Yuanta Securities, explained, “The starting point of KOSDAQ’s underperformance came from the exit of individual investors, who had been the main net buyers. While individuals made net purchases of 114 trillion won in KOSPI from the beginning of the year through last month, they were net sellers in the KOSDAQ, unloading 9.8 trillion won.”

Lee added, “The single-stock leveraged ETFs launched on May 27 shifted significant individual investor funds to Samsung Electronics and SK hynix. As both core buyers and trading value disappeared from the KOSDAQ, the market broke below both its 60-day and 120-day moving averages in succession, resulting in a steeper decline than could be explained by fundamentals at the individual company level.”

KOSDAQ Sentiment Improving Following Single-Stock Leveraged ETF Regulations

However, with full-fledged regulations on single-stock leveraged ETFs beginning this month, there is speculation that the KOSDAQ market may stage a recovery. In fact, from the beginning of this month through August 6, the KOSDAQ rose by 11.38%, overwhelmingly outpacing the KOSPI, which recorded -4.53%.

Lee noted, “Since August, there has been a continued shift in capital from large-cap semiconductor stocks to small- and mid-cap KOSPI stocks as well as KOSDAQ,” adding, “The major reason for this is the strengthening of regulations on single-stock leveraged ETFs.” According to Yuanta Securities, trading value in single-stock leveraged ETFs plunged from 13.9 trillion won on July 30, right before the regulations went into effect, to around 1 trillion won.

Kim Hakjun, a researcher at Kiwoom Securities, also forecast, “With supply and demand improving due to regulatory measures on leveraged ETFs, the likelihood of a KOSDAQ rebound in August is high,” expecting that “companies with improved earnings and momentum will attract attention.”

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