KOSDAQ to Get First and Second Divisions Like Pro Soccer... What Will the Impact Be? [Weekend Money]

Prevent listing transfers and increase KOSDAQ's overall scale
Large-cap stocks could surpass top KOSPI stocks in market capitalization
Segmenting the market could make it easier for startups to attract investment

An analysis has found that the positive effects of introducing the KOSDAQ tier system, which the government plans to pursue to revitalize the KOSDAQ market, will outweigh its potential drawbacks. The system divides the KOSDAQ market into segments such as Premium, Standard and Managed, and allows companies to move up or down between segments depending on whether they meet the requirements.

On Oct. 18, Eom Sujin, a researcher at Hanwha Investment & Securities, said, "Once the tier system takes hold, high-quality companies will be able to remain on the KOSDAQ instead of feeling compelled to transfer their listings to the KOSPI, thereby raising the overall caliber of the KOSDAQ market." She added, "The Premium segment designation under the system will have an effect similar to transferring a listing to the KOSPI, helping prevent high-quality stocks from leaving the KOSDAQ market."

According to an analysis by Hanwha Investment & Securities, of the 16 companies that transferred their listings from the KOSDAQ to the KOSPI between July 2016 and June 2024, Celltrion, Kakao, Dongseo, L&F, POSCO DX and POSCO Future M were high-quality stocks that had ranked among the KOSDAQ's top five companies by market capitalization. Eom said the KOSDAQ index would inevitably be affected if such high-quality stocks left the market.

With the introduction of the tier system, companies in the Premium segment could even surpass the market capitalization of top KOSPI stocks. In the United States, the Nasdaq market is divided according to financial requirements and other criteria into Nasdaq Select, for large, high-quality and mature companies; Nasdaq Global, for mid-sized and small companies with stable businesses; and Nasdaq Capital, for small, new and early-stage growth companies. Eom said, "A comparison of the 10 largest companies by market capitalization on the New York Stock Exchange (NYSE) and Nasdaq Select shows that Nasdaq Select's companies have a greater combined market capitalization." She added, "KOSDAQ companies in the Premium segment could become global blue chips, just like those on Nasdaq Select."

The tier system could also increase trading value on the KOSDAQ. While trading is inevitably likely to concentrate in the higher-tier segments, the system could expand the market as a whole. Citing the Tokyo Stock Exchange, which was reorganized into Prime, Standard and Growth segments in April 2022, Eom said, "The Prime segment's share of trading value was clearly higher than that of the other two segments, but overall trading value on the Tokyo Stock Exchange has continued to trend upward since the reorganization."

Finally, Eom said the tier system would make it easier for new venture companies to attract investment. "When more than 1,700 KOSDAQ-listed stocks are mixed together without a clear structure, it can be harder for companies to stand out. Under a tier system, companies could find it easier to attract investment by establishing a presence within their segment," she said. "I believe the system's purpose would be better served by managing the Managed group separately, outside the tier structure, and adding a segment below Standard for promising emerging companies."

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