"When KOSPI Surges 60% but Only KOSDAQ Lags... This Signal Is Needed for a Rebound [Weekend Money]"

Korea Investment & Securities:
"KOSDAQ Market Needs Rate Cuts for a Major Rebound"

On the 28th of last month, when the KOSDAQ sharply dropped by about 8% and fell below the 700 mark, the situation board at the dealing room of Seoul Hana Bank headquarters. Photo by Yonhap News.

An analysis has indicated that for the KOSDAQ index, which has performed extremely poorly compared to the KOSPI this year, to stage a real rebound, interest rates need to come down.

According to Korea Investment & Securities on the 29th, while the KOSPI has surged by over 60% since the beginning of this year, the KOSDAQ has declined by about 13%, creating a significant gap between the two indices.

When breaking down performance by period, there was little difference in returns between the KOSPI (a 43.9% drop) and the KOSDAQ (a 48.7% drop) during the decline in June and July. In the rebound section in August, the KOSPI (up 31.4%) and the KOSDAQ (up 27.1%) also showed little difference. However, in the upward phase in the first half, the KOSPI soared by 122.7%, while the KOSDAQ only rose by 32.8%, which explains the stark difference in year-to-date returns.

Korea Investment & Securities pointed out that the main reason the KOSDAQ only climbed 33% in the first half—while the KOSPI jumped 123%—was earnings. The KOSPI’s operating profit for the first half of this year amounted to 433 trillion won, surpassing the full-year record high of 307 trillion won set in 2025 in just six months. In contrast, the KOSDAQ reported operating profits of 11.3 trillion won, a substantial increase from 6.9 trillion won in the same period last year, but nowhere near as overwhelming as the KOSPI.

Additionally, the widening gap between the indices was attributed to the fact that this year’s stock rally was powered by artificial intelligence (AI) semiconductor companies concentrated among large-cap KOSPI stocks. The five largest companies by market capitalization account for 59% of the total KOSPI market cap, whereas the corresponding figure for KOSDAQ is just 13%.

Yeom Dongchan, a researcher at Korea Investment & Securities, stressed, "A meaningful rebound in the KOSDAQ market is likely to occur during periods of falling interest rates." He also commented, "As of the second quarter, the KOSDAQ’s net profit is at its highest level since the fourth quarter of 2020, and its price-earnings ratio (P/E) is at the lowest level since December 2020," indicating that the KOSDAQ is at a level that can be considered attractive for buyers from a valuation perspective.

However, he explained, "With growth stocks making up a large portion of the KOSDAQ index, the recent rise in market interest rates poses a burden." Yeom further noted, "Looking back at the relationship between the three-year government bond yield and KOSDAQ returns over the past 20 years, the KOSDAQ generally performed well when yields were below 3%. Even when the yield rose to the 3-4% range, the KOSDAQ showed strength during phases when rates were declining."

He concluded, "Ultimately, for the KOSDAQ, not only the absolute level of interest rates but also their direction is crucial," adding, "For the KOSDAQ to see meaningful gains, a decline in the three-year government bond yield—which is currently in the upper-3% range—will be a necessary condition."

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