[Inside Chodong] KONEX on the Brink: Establishing Its Identity Is the First Step

Urgent Measures Needed
to Ensure KONEX Fulfills Its Role
as a Growth Ladder for Small and Venture Companies

Song Hwajeong, Deputy Head of Securities Capital Markets Department

With less than two months remaining in 2023, looking back over the year, the stock market has once again been eventful. After a sluggish performance last year, the market showed an upward trend from the beginning of the year, with expectations rising as the KOSPI approached the 2700 mark in August. However, after August, the market correction deepened, and the index fell back to the levels seen at the start of the year, leaving investors sighing.

By sector, it would not be an exaggeration to say that this was the year of secondary batteries, given their overwhelming influence. Secondary batteries both led the market's rise and triggered the subsequent correction. The stock prices, which had risen sharply along a steep curve, fell just as quickly, slipping down suddenly.

Significant incidents also occurred one after another. In April, the Ra Deok-yeon scandal caused a series of limit-downs, and market manipulation at Youngpoong Paper shocked the market. Recently, political pressure even led to a temporary ban on short selling.

Despite the stock market's constant fluctuations, one place remained unusually quiet: the KONEX market, which celebrated its 10th anniversary this year. Its presence has become so faint that it is almost marginalized in the market.

Last month, the KONEX market's market capitalization fell to 3.9489 trillion won, dropping into the 3 trillion won range. Having surpassed 7 trillion won in 2018, the KONEX market capitalization has been on a steady decline since. This year, it has hovered in the low 4 trillion won range after starting the year at around 3 trillion won. The average daily trading volume last month was 587,000 shares, half of the previous month's 1.14 million shares. The average daily trading value was 1.463 billion won. KONEX's average daily trading value was 7.4 billion won in 2021 but dropped to the 2 billion won range last year and has remained sluggish since.

New listings that could invigorate the market are as rare as beans in a drought. Thirteen companies have entered the KONEX market this year. Considering the remaining period, this is expected to be similar to last year's 14 companies. The number of new listings on KONEX was 21 in 2018 but dropped to 12 in 2020 and 7 in 2021 due to the impact of COVID-19. Although it increased to 14 last year, it has not yet recovered to pre-COVID-19 levels.

Given that top market capitalization companies in the KOSDAQ market are consecutively moving to the KOSPI market, it is understandable that the KONEX market is filled only with coldness. It is natural for companies to want to grow and move to bigger waters. Moreover, the goal of the KONEX market is to help companies raise funds and grow. The ideal scenario is for many companies to list on KONEX, build their strength, and then transfer-list to KOSDAQ.

The problem is that companies are increasingly ignoring the KONEX market itself. Instead of entering KONEX, growing their size, and then transferring to KOSDAQ, more companies prefer to go directly to KOSDAQ.

This is because there is a perception that listing on KONEX does not bring significant benefits. Companies must bear maintenance costs such as fees for designated advisors when listed on KONEX, but except for a few companies, raising funds is not easy. Furthermore, with the lowered threshold for KOSDAQ listing, companies see going directly to KOSDAQ as a much better option.

As KONEX is squeezed by both the KOSDAQ market and the over-the-counter market, debates about its identity and usefulness have been ongoing for several years. However, the importance of the KONEX market as a growth ladder for small and venture companies cannot be denied. Although it is currently going through growing pains, visible and definite measures are urgently needed to help KONEX establish its identity and properly fulfill its role.

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