To Leading Small and Mid-Cap Stocks... 'Size Rotation' Is Coming

[Asia Economy Reporter Ji Yeon-jin] There is a forecast that the recent investment craze centered on large-cap stocks driving the domestic stock market will shift to KOSDAQ small- and mid-cap stocks. Analysts say the atmosphere is ripe for the start of a ‘Size Rotation,’ where market leadership in gains shifts from large-cap to small- and mid-cap stocks.

According to the financial investment industry on the 16th, the 3-month return gap between KOSPI and KOSDAQ widened to 18.5 percentage points last month. Historically, the return gap between the two indices has never exceeded 20 percentage points. This means that investment funds concentrated in KOSPI are highly likely to flow toward KOSDAQ small- and mid-cap stocks.

Fundamentals are also favorable for the KOSDAQ small- and mid-cap market. The domestic leading economic index has been on the rise this year, indicating strong optimism about the future real economy. Analysts believe that the combination of improved earnings strength of KOSDAQ small- and mid-cap stocks and their continued price neglect will turn investors’ attention to KOSDAQ. Kim Yong-gu, an analyst at Samsung Securities, said, "Market investors, who are under pressure to manage returns, will shift their strategic focus from KOSPI large-cap stocks to the KOSDAQ small- and mid-cap market. It may be advantageous to concentrate on stocks with recent earnings momentum among companies whose worst forecasts are significantly improving, as well as those in the top ranks of foreign cumulative net buying."

The situation in the U.S. is also creating a favorable environment for small- and mid-cap stocks. A $1.9 trillion additional U.S. economic stimulus package is on the verge of passing Congress. Following last month’s weak U.S. employment data and poor consumer sentiment, the need for large-scale policy stimulus has increased, accelerating the bill’s passage. It is expected to pass the House this month and the Senate before the federal government’s unemployment benefits expire on the 14th of next month. This could serve as a key catalyst to rebound the National Federation of Independent Business (NFIB) small business optimism index. The U.S. stimulus package includes an additional $1,400 payment per person, support for local governments, and unemployment benefits, acting as a primer to boost the livelihoods of low-income households and the vitality of small businesses.

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