Short Selling Cloud Clears on KOSDAQ... 'Clearer Skies' Expected in Second Half

US Tapering Spurs Small and Mid-Cap Rally
Supported by Strong Foreign Demand
5 Consecutive Days of Gains, Recovering 980 Level
Expectations for Pension Funds and Individual Demand Improvement in H2

[Asia Economy Reporter Song Hwajeong] The KOSDAQ has risen for five consecutive days recently, regaining the 980 level. Although stock prices sharply declined at the end of last month due to concerns over the resumption of short selling and continued weakness, it has shown a recovery trend recently, supported by relatively favorable foreign demand. Supply and demand conditions are expected to improve further in the second half of the year.

As of 10:01 a.m. on the 1st, the KOSDAQ recorded 982.63, up 0.85 points (0.09%) from the previous day. Although it showed weakness in the early session, it successfully reversed to an upward trend, continuing its strong performance for six consecutive days. From the 25th of last month to the day before, the KOSDAQ rose 3.52%, outperforming the KOSPI's 1.9% increase.

The KOSDAQ had fallen sharply at the end of April ahead of the resumption of short selling, breaking below the 1000 mark, amid concerns that the impact of short selling would be greater on the KOSDAQ than on the KOSPI. During the same period, the KOSPI also declined, but the drop in the KOSDAQ was much larger. The KOSPI quickly recovered from the short selling shock and set a new all-time high again on the 10th of last month. Although the KOSDAQ also rebounded, it did not recover the 1000 level. Since then, both the KOSPI and KOSDAQ have undergone adjustments, but recently the KOSDAQ has shown a faster recovery.

The relative difference between the KOSPI and KOSDAQ is interpreted as being due to large-cap stocks showing weakness under the influence of U.S. tapering (asset purchase reduction) and other factors. Choi Jaewon, a researcher at Kiwoom Securities, analyzed, "In the past week, the KOSPI rose 1.02% compared to the previous week, while the KOSDAQ rose 1.23%. A size effect (return changes according to market capitalization) appeared, with mid-cap stocks (2.66%) and small-cap stocks (1.4%) showing relatively strong performance."

Foreign buying was also stronger in the KOSDAQ. In the past week, foreigners net sold 266.8 billion KRW in the KOSPI but net bought 247.6 billion KRW in the KOSDAQ.

More favorable conditions are expected to be created for the KOSDAQ in the second half of the year. Lee Euntaek, a researcher at KB Securities, said, "Additional net selling by pension funds will come to an end during the summer, and net selling pressure will be relieved from autumn. If pension funds turn to net buying after summer, attention should be paid to the KOSDAQ." He added, "If the 'diversification of domestic stock investment scope for pension funds and others' announced by the Ministry of Strategy and Finance in January is realized this year, the diversification target will be the KOSDAQ."

Not only pension funds but also individual demand is expected to improve from autumn. Lee said, "The rapid increase in credit loan balances during the KOSDAQ's strong period in March and April became a supply-demand burden during the May adjustment. The supply-demand burden, where the KOSDAQ index falls along with a decrease in credit loan balances, may continue for about two months, but individual demand is expected to improve from late summer or autumn." If credit loan balances are repaid to some extent, the supply-demand burden will be relieved, creating an environment where the KOSDAQ can attempt another rebound.

The U.S.-originated tax increase issue is also expected to raise interest in small and mid-cap stocks. Lee said, "If the tax increase issue is highlighted globally and in the U.S. in the second half of the year, small and mid-cap stocks are likely to become beneficiaries of the tax increase. Interest in small and mid-cap stocks in the U.S. stock market, which will intensify in summer, as well as at the global level, will lead to increased interest in small and mid-cap stocks in the domestic stock market."

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