[MarketING] Historically, the January Effect is More Pronounced in KOSDAQ

KOSDAQ Closes Higher After Four Days
Short-Term Trading Strategy Focused on Small and Mid-Cap Stocks Remains Valid

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] The KOSDAQ closed higher after four days of decline. Since the January effect has historically been more pronounced in the KOSDAQ than in the KOSPI, KOSDAQ small and mid-cap stocks are considered an alternative in the current volatile market environment.

KOSDAQ Closes Higher After Four Days

On the 3rd, the KOSDAQ closed at 674.95, up 3.44 points (0.51%) from the previous session. Although the KOSDAQ started the day higher, it soon turned downward but reversed to an upward trend in the afternoon, showing strength after four days. The KOSPI also briefly turned upward in the afternoon but failed to sustain the momentum and closed lower.

Kim Seokhwan, a researcher at Mirae Asset Securities, analyzed, "In the early session, continuous selling by foreigners and institutions expanded the downside amid an unstable supply-demand environment, but the announcement of an expanded tax credit for the semiconductor sector and the rebound in the Chinese stock market helped reduce the losses and triggered a rebound."

Individual investors drove the KOSDAQ's rise by buying alone. On that day, individuals purchased 72.2 billion KRW in the KOSDAQ market. In contrast, foreigners sold 74.2 billion KRW, and institutions sold 14.6 billion KRW, respectively.

Historically, the January effect has been more distinct in the KOSDAQ than in the KOSPI. According to Daishin Securities, since 2000, the average January return for the KOSDAQ is 2.68%, the highest among monthly returns. The KOSPI's average January return is 0.49%, much lower than the KOSDAQ. The probability that the KOSDAQ outperforms the KOSPI in January is 56.5%, the highest among the 12 months. Lee Kyungmin, a researcher at Daishin Securities, explained, "This is because, due to major shareholder requirements and capital gains tax, especially in November and December, individual investors tend to sell, and then switch to net buying in January, creating a relatively favorable investment environment for the KOSDAQ and small and mid-cap stocks."

In particular, when the KOSPI declined in December, the average return of the KOSDAQ in the following January was notably high at 8.89%. In this case, the probability of the KOSDAQ rising in January was 77.8%, higher than the KOSPI's 55.6%.

Short-Term Trading Focused on Small and Mid-Cap Stocks Effective

In the current market environment dominated by concerns over an economic recession, a short-term trading strategy centered on small and mid-cap stocks is considered effective. Researcher Lee said, "In a phase where expectations for growth significantly decline amid visible economic recession, there will likely be short-term trading opportunities centered on small and mid-cap companies benefiting from government policy drives. In particular, attention should be paid to sectors mentioned in the 2023 Economic Policy Direction's New Growth 4.0 strategy and export promotion policies, such as semiconductors, secondary batteries, media & content, nuclear power, and defense."

From a profit perspective, small and mid-cap stocks are also worth considering. Lee Jaeseon, a researcher at Hyundai Motor Securities, analyzed, "The fact that the earnings bottoming out of large-cap stocks has not yet been observed increases the possibility of extending the momentum of small and mid-cap stock demand. In terms of absolute operating profit margin, the consensus operating profit margin for small and mid-cap stocks this year is 7.6%, which is low, but the consensus for large-cap stocks' operating profit margin (7.8%) is gradually declining compared to the beginning of the year, narrowing the gap with the small and mid-cap stocks' consensus operating profit margin."

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