Despite Next Month's Launch of the Jeungan Fund, Small and Mid-Cap Stocks Sigh

Index Product ETFs and Index Inflows
Concerns Over Concentration in Large-cap Stocks and Beneficiaries

Financial Services Commission Chairman Eun Sung-soo is announcing measures to stabilize the financial market related to COVID-19 at the briefing room of the Government Seoul Office in Jongno-gu, Seoul on the 24th. Photo by Moon Ho-nam munonam@

[Asia Economy Reporter Ji-hwan Park] As the government plans to inject a 10.7 trillion KRW Securities Market Stabilization Fund (SMSF) into the domestic stock market starting next month, attention is focusing on the beneficiary stocks. Since the injection targets are mainly index funds or exchange-traded funds (ETFs) that track representative stock market indices, it is analyzed that large-cap stocks with high investment weights in these funds will receive concentrated benefits. There are also concerns that the marginalization of small- and mid-cap stocks may intensify.

According to the financial investment industry on the 26th, the Financial Services Commission decided on the 24th to inject a 10.7 trillion KRW SMSF to stabilize the stock market. Eun Sung-soo, Chairman of the Financial Services Commission, stated, "We will invest and operate in index products representing the entire market rather than individual stocks to promote overall stock market stability." Approximately 3 trillion KRW of funds will flow into the stock market starting early next month. Analysts expect that large-cap stocks will rebound relatively stronger once the SMSF enters the market, as the main purchase targets of the SMSF are index funds and ETFs tracking representative market indices such as KOSPI 200 and KRX 300.

According to financial information provider FnGuide, as of the end of December last year, the proportion of large-cap stocks in domestically managed equity index funds reached 87%. This is significantly higher compared to mid-cap stocks at 10.06% and small-cap stocks at 2.94%. For index funds tracking the KOSPI 200 index, the large-cap stock proportion is 93.20%, and for those tracking the KRX 300 index, it is 87.86%. This structure inevitably channels a substantial portion of SMSF funds into large-cap stocks.

Lee Eun-taek, a researcher at KB Securities, explained, "The policy purpose of the SMSF is to follow index investments and purchase mainly large-cap stocks to achieve stock market stabilization and improve supply and demand," adding, "Supply and demand benefits centered on mid- to large-cap stocks are expected."

There are also concerns that the marginalization of small- and mid-cap stocks may become more pronounced as supply and demand concentrate on large-cap stocks. A financial investment industry official pointed out, "Small- and mid-cap stocks are unlikely to benefit significantly from the SMSF injection," and warned, "The polarization of stock prices between large-cap and small- and mid-cap stocks may deepen for the time being."

Stock market experts diagnose that considering the injection capacity relative to market capitalization, this is an unavoidable choice. Hwang Se-woon, a research fellow at the Capital Market Research Institute, explained, "At the current scale, there is a limit to directly affecting all market stocks," and added, "Funds will be prioritized for stocks that can have the greatest impact on the market, and once the market stabilizes, small- and mid-cap stocks are also expected to experience additional stock price increases."

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