Why Did KOSDAQ Hit a Record High After the Iran War? Foreign Investors Flock In, Sweeping Up Shares

As the KOSDAQ index continued its sharp rise following the previous day, a temporary suspension of program buy orders (sidecar) was triggered early in the session on the 6th. Employees are seen working in the dealing room at the Seoul Hana Bank headquarters. On the day, the KOSPI closed at 5,491.02, down 92.88 points (1.66%) from the previous trading day, while the KOSDAQ index rose 1.08 points (0.10%) to 1,117.49. The won/dollar exchange rate opened at 1,479.0 won, up 10.9 won from the previous day. 2026.3.6 Photo by Jo Yongjun

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Amid the market correction driven by the ongoing war between the United States and Iran this month, the KOSDAQ index is drawing attention for remaining resilient compared to the KOSPI. The government's commitment to revitalizing the KOSDAQ market is stronger than ever, and expectations for the launch of active exchange-traded funds (ETFs) are fueling continued foreign buying in the KOSDAQ, thereby lifting the index.

On March 6, the KOSPI opened at 5,491.02, down 1.66% from the previous trading day, but pared some losses to record a 0.57% decline as of 9:42 a.m. The KOSPI was also affected by a sharp rise in international oil prices and a decline in the New York stock market, amid growing concerns that the war between the United States, Israel, and Iran could drag on.

On March 5 (local time) in the New York market, the Dow Jones Industrial Average fell 1.61% from the previous session, while the Nasdaq declined 0.26%. The Philadelphia Semiconductor Index also dropped by 1.17%. International oil prices surged past $81 per barrel, hitting the highest level in about 20 months, contributing to market weakness. Fears that the conflict between the United States and Iran could escalate into a ground war and potentially embroil neighboring countries pushed oil prices higher. Han Ji-young, a researcher at Kiwoom Securities, analyzed, "Amid the ongoing war, international oil prices have shown unusual price movements, which turned the New York market bearish."

While the KOSPI faced a correction due to geopolitical uncertainties, the KOSDAQ stood out with strong gains. On this day, the KOSDAQ opened at 1,117.49, up 0.10%, and climbed as much as 3.39% during the session. As the futures index surged more than 6%, the buy-side sidecar (temporary suspension of program buy orders) was triggered for the second consecutive day. While the KOSPI fell more than 10% this month due to the war, the KOSDAQ's decline was limited to around 3%.

There is a clear trend of foreigners and institutional investors selling in the KOSPI and buying in the KOSDAQ. As of March 4, the cumulative net purchases of the KOSDAQ by foreigners this year reached 3.5096 trillion won. By contrast, foreigners net sold 25 trillion won in the KOSPI over the same period.

Even after the outbreak of the war between the United States and Iran, foreigners have continued large-scale net purchases of Korean stocks in the KOSDAQ. From March 3 through the previous day, foreigners net bought 2.7 trillion won in the KOSDAQ, in stark contrast to net sales of more than 5.6 trillion won in the KOSPI over the same period. During this period, institutions also net bought about 800 billion won in the KOSDAQ, while only individual investors were net sellers. Notably, the previous day, the KOSDAQ surged 14.1%, marking the highest daily gain ever, driven by net purchases of over 800 billion won by foreign investors.

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The government's strong will to revitalize the KOSDAQ market, coupled with anticipation for asset management firms' launch of KOSDAQ active ETFs, is interpreted as driving capital inflows into the KOSDAQ market.

Since its inauguration, the Lee Jaemyung administration, having achieved its key goal of bringing the KOSPI to 5,000, has set KOSDAQ market revitalization as its next major objective. The government and the ruling party are pushing various policies to boost the KOSDAQ, including swift delisting of insolvent companies and separating the KOSDAQ division from the Korea Exchange.

Experts believe that even a rapid cleanup of insolvent companies would significantly contribute to KOSDAQ revitalization. According to a survey by the Korea Capital Market Institute last month, if companies with an interest coverage ratio below 1 for three consecutive years since 2011 were excluded from the index and the KOSDAQ was recalculated, the KOSDAQ index as of the end of June 2024 would have been 37% higher than it actually was. The faster insolvent companies are removed, the greater the index gains.

Lee Sangho, a research fellow at the Korea Capital Market Institute, emphasized, "Marginal companies inefficiently occupy scarce economic resources, hindering the growth of sound companies and reducing investment incentives across the stock market. Their strict delisting can enhance the overall competitiveness of the market."

The securities industry is also supporting the government's will to boost the KOSDAQ. Major asset management firms plan to launch KOSDAQ active ETFs for the first time this month. Unlike passive ETFs that simply track the underlying index, active ETFs are products where fund managers directly determine the allocation of individual stocks to achieve returns exceeding the index. While many active ETFs have been launched for the KOSPI, the KOSDAQ had none due to the high number of insolvent companies.

Later this month, Samsung Active Asset Management, Timefolio Asset Management, and Hanwha Asset Management plan to introduce active ETFs that selectively invest in KOSDAQ stocks. Samsung and Timefolio are scheduled to launch their KOSDAQ active ETFs on March 10, while Hanwha's launch is set for March 17.

Lee Hyoseop, a senior research fellow at the Korea Capital Market Institute, said, "We expect that after the launch of KOSDAQ active ETFs, institutional and long-term investment funds will flow into the KOSDAQ. In particular, since pension products can also invest, this will help revitalize the KOSDAQ market over the mid- to long-term."

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