[Editorial] As KOSDAQ Breaks 1,000, It Must Evolve into a Cradle of Innovative Firms

The KOSDAQ Index climbed above the 1,000 mark on the 26th, ushering in what some are calling the "Cheon-KOSDAQ" era. It has reclaimed the 1,000-point level for the first time in about four years. Expectations for government policies to revitalize Korea Securities Dealers Automated Quotations (KOSDAQ), combined with strong gains in bio and secondary battery stocks, were strong enough to trigger an intraday buy-side circuit breaker. The index even surpassed its recent peak of 1,062.03, recorded in August 2021. Yet this rally in KOSDAQ cannot be welcomed without reservation. In the past, funds have poured into KOSDAQ like a rising tide, only to recede just as quickly. Individual investors may end up suffering losses instead of making money.
The fact that the index has entered the so-called Cheon-KOSDAQ era is also hard to regard as a new milestone. The Korea Composite Stock Price Index (KOSPI) is rewriting history by breaking above the 5,000 mark for the first time ever. By contrast, KOSDAQ’s move past 1,000 falls far short of its past glory. During the dot-com bubble in 2000, KOSDAQ once surged intraday to 2,925.5 points. Today’s 1,000 level, reached 26 years later, is only about one-third of that all-time high.
There is a strong desire to see the recently surging KOSDAQ Index continue its upward run. For that to happen, however, the market must overcome its chronic structural weaknesses. There are many reasons why KOSDAQ has been sluggish. To begin with, trading value is heavily concentrated in a handful of theme stocks, leaving most other issues suffering from a lack of liquidity. Excluding a small number of popular names, the rest of the market resembles a "zombie market" where shares are barely traded.
Financially weak companies are the biggest headache for KOSDAQ. Firms with poor earnings and deteriorating balance sheets, whose eligibility for listing is questionable, are eroding trust in the market. Initial public offering reviews are relatively lax, yet there are repeated cases of share prices plunging soon after listing. Under such conditions, investor distrust in the stock market only deepens. Problems with disclosure transparency are also fueling skepticism toward KOSDAQ-listed companies. Allegations of stock-price manipulation by collusive trading rings never seem to stop. Sanctions against unfair trading are typically imposed only after scandals erupt, which makes them less effective as a deterrent.
In the United States, the Nasdaq Stock Market (NASDAQ) has become a cradle of innovation and prosperity. Nurturing a global market for technology stocks is effectively the same as enhancing national interests. Since KOSDAQ was modeled after NASDAQ, it should play a similar role as a funding channel for venture companies. KOSDAQ ought to be reborn as a foundation where innovative firms, the future growth engines of the Korean economy, can flourish. In reality, however, it is often derided as little more than a speculative arena.
Fortunately, the government has recognized the gravity of the problem and decided to push for reforms. Investor sentiment in the market is also relatively positive. This is the right moment to apply strong pressure for institutional improvements that enhance the sustainability of KOSDAQ, including a redesign of listing reviews and delisting criteria.
In the past, various KOSDAQ revitalization plans were announced, but they repeatedly ended up as empty slogans. For the break above 1,000 to have real meaning, policymakers must be determined to overhaul the market’s very structure. If efforts are limited to ad hoc political ideas or short-term stimulus measures, KOSDAQ will neither develop nor escape the cloud of distrust that hangs over it.