[Initial Insight] Reopening and KONEX

[Asia Economy Reporter Song Hwajeong] The term "reopening," meaning to open again, is used in the COVID-19 era to signify the resumption of economic activities. As countries closed their air routes and imposed lockdown measures due to COVID-19, the lifting of these restrictions and the restart of economic activities are referred to as reopening. In the stock market, industries such as airlines, hotels, travel, casinos, and entertainment, which were affected by lockdowns, are considered beneficiaries of reopening.

Last year, as countries implemented lockdown measures due to the spread of COVID-19, reopening stocks had to endure difficult times. With air routes blocked and overseas travel coming to a complete stop, airlines, travel, hotels, casinos, and duty-free shops were among the most severely impacted. Entertainment stocks were affected as in-person concerts were halted, and cosmetics stocks, which had significant sales through Chinese peddlers known as "ttaigong," were no exception. Many companies turned to losses, and stock prices fell relentlessly. Although there has been some improvement this year due to the base effect from last year, it is still far from recovering to pre-COVID-19 levels.

With the phased return to daily life (With COVID-19) starting this month, expectations for reopening are gradually increasing. In particular, reopening-related stocks surged significantly recently following Pfizer's announcement of the development of an oral COVID-19 treatment. As the saying goes, "No pain, no gain," with expanded vaccination and treatment development helping to escape COVID-19, it is expected that past difficulties will be compensated through performance and stock price recovery.

While places that had been cold are gradually seeing sunlight, the KONEX market still feels the chill. Only four new companies were listed on KONEX this year. At the same time last year, seven companies were listed, and in 2019 before COVID-19, ten companies were listed by the end of October. Although the number of new listings decreased, companies that grew in size moved to KOSDAQ, reducing the number of KONEX-listed companies from 143 at the beginning of this year to 133, and trading volume sharply dropped from 15.2 billion KRW to 5.5 billion KRW, about one-third of the previous level.

Since the second half of last year, an unprecedented IPO boom has emerged as the shock of COVID-19 subsided, but KONEX was thoroughly neglected. As the listing threshold for KOSDAQ lowered, companies chose to go directly to KOSDAQ rather than passing through KONEX. This is due to the significant lowering of KOSDAQ listing barriers through systems such as the fast-track transfer listing for KONEX companies, technology special cases, Tesla requirements, and sponsor growth recommendation special cases. Advisory fees and other costs to maintain KONEX listings are also cited as reasons for KONEX's neglect. The basic deposit requirement of 30 million KRW for general investors also acts as a barrier to entry. At a recent seminar hosted by the Korea Exchange titled "Seminar for the Successful Reboot of the KONEX Market," experts from various fields unanimously agreed that abolishing the 30 million KRW basic deposit barrier should be the first priority to expand the KONEX supply-demand base. They also pointed out the need to ease accounting burdens and the burden of transferring listings to KOSDAQ. The Korea Exchange is also reviewing measures to revitalize KONEX, including abolishing the basic deposit.

KONEX recorded its worst performance in eight years since its launch, with only 12 companies listed last year. If the current situation continues, this record is expected to be broken again this year. Since 2017, KONEX has been lowering this record every year. Like reopening stocks that have passed through the dark tunnel of COVID-19, KONEX desperately needs an opportunity for reopening.

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