With the Power of Ants... Entering the 'Cheonsudak' Era After 20 Years

Due to past base index adjustments... First entry driven by market forces
Record-breaking individual net buying since last year... Surpassing foreigners and institutions
Late January effect emergence raises hopes for settling above 1000 points

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The KOSDAQ index has surpassed the 1000 mark for the first time in 20 years. Although the spread of the novel coronavirus infection (COVID-19) remains a variable, there are forecasts that the index can stabilize above 1000 as massive liquidity leads to a rotation among small and mid-cap stocks.

On the 26th, KOSDAQ opened at 1000, up 0.07% (0.70 points) from the previous day. This marks the first time in 20 years since it recorded 1020.70 on September 14, 2000, that the index has entered four digits. At that time, the stock price was the result of raising the base index from 100 to 1000 as of January 2004 and applying it retroactively, which inflated previous indices tenfold. Considering this, it is effectively the first time the market’s strength has driven the index into the 1000 era.

The main drivers of the 1000 era are individual investors. Last year, individuals net purchased 16.3174 trillion won worth of KOSDAQ stocks, an increase of 158.7% compared to the previous year. This contrasts with institutions and foreigners, who net sold 10.4751 trillion won and 1.476 trillion won, respectively. This year, individual buying momentum has continued steadily. From the beginning of this month until the day before, they have purchased a total of 2.1602 trillion won. Except for the 19th, 20th, and 25th, all days recorded net purchases.

KOSDAQ initially launched at 1000 on July 1, 1996. It soared to 2834.40 on March 10, 2000, at the peak of the ‘IT bubble,’ but the bubble soon burst, causing a sharp decline. On September 15 of the same year, it dropped to 992.5, falling below the index’s launch level. The downturn continued thereafter. During the global financial crisis, on October 27, 2008, it hit an all-time low of 261.19.

Since then, steady structural improvements have been made. In 2009, a delisting review system was introduced to promptly remove insolvent companies, and comprehensive measures to revitalize KOSDAQ, such as the KOSDAQ Venture Fund, were implemented. As a result, on January 16, 2018, the closing price surpassed 900, reaching 901.23. This was about 16 years after recording 927.30 on March 29, 2002.

There are expectations that KOSDAQ, entering the ‘1000 era’ after 20 years, can maintain its upward trend for the time being. The so-called ‘January effect’ that has appeared in the KOSDAQ market is expected to manifest belatedly, leading to a rotation among small and mid-cap stocks. The January effect refers to the phenomenon where the stock market’s rise in January is relatively higher than in other months without any special positive news. In the domestic market, the January effect has mainly appeared in the KOSDAQ market, which is centered on small and mid-cap stocks.

The atmosphere supporting an additional extension of the short-selling ban is also a positive factor. Sungcheol Lim, a researcher at Heungkuk Securities, explained, “Amid strong demands for improvements in short-selling-related regulations, the government also sees it physically difficult to resume short selling in March. Since the government’s stock market stabilization plan includes expanding the pension funds’ investment ratio in KOSDAQ, the attractiveness of investing in small and mid-cap stocks has increased compared to large-cap stocks.”

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