On Aug. 18, the Kospi and Kosdaq indexes are displayed on a board in the dealing room of Hana Bank in Jung-gu, Seoul. Yonhap News
One in four companies in the KOSDAQ 150, the benchmark index of South Korea’s KOSDAQ market, is loss-making, data showed. As financial authorities and the Korea Exchange (KRX) push to introduce a promotion-relegation segment system to strengthen KOSDAQ’s competitiveness, critics say index calculations and segment criteria should take companies’ earnings strength into account. While the government is pursuing measures to expand liquidity inflows into KOSDAQ, weak corporate earnings have left the market languishing around the 1,000 mark.
According to FnGuide on Friday, 40 of the 150 companies currently included in the KOSDAQ 150 posted net losses on a separate basis in the first quarter of this year, accounting for 26.7% of the total. Among KOSDAQ 150 constituents, 43 companies recorded annual net losses in both last year and 2024, a similar level.
The largest first-quarter loss came from LigaChem Biosciences, which ranks 15th in KOSDAQ market capitalization at 4.9791 trillion won, with a loss of 35.6 billion won. Other KOSDAQ 150 constituents with market caps exceeding 1 trillion won also posted consecutive quarterly net losses, including Voronoi at 22.4 billion won, Lunit at 19.7 billion won, Orum Therapeutics at 15.9 billion won, and HLB at 15.8 billion won.
When calculated by market capitalization, the share of loss-making companies in the KOSDAQ 150 grows even larger. The combined market cap of KOSDAQ 150 companies stood at 333.4637 trillion won based on Friday’s closing price. Of this, the combined market cap of loss-making companies was 108.5237 trillion won, or 32.5%.
The KOSDAQ 150 is the benchmark index of the KOSDAQ market introduced by the exchange in 2015. Exchange-traded funds (ETFs) and various derivatives targeting the KOSDAQ market track the index. The exchange adds and removes constituents twice a year, considering sector weightings based on criteria such as market capitalization, trading value, and liquidity. Under this structure, even loss-making companies can be included as benchmark index constituents if their market cap is high. In particular, because the KOSDAQ market hosts many companies in fields such as biotech, healthcare, and robotics that have yet to turn a profit, higher-cap companies driven by expectations of future growth are often loss-making.
The problem is that since the value of companies failing to generate net profit accounts for one-third of the combined market cap of benchmark index constituents, institutional investors such as domestic pension funds and foreign investment banks (IBs) find it increasingly difficult to decide on KOSDAQ investments. To ease the KOSDAQ market’s investor concentration among retail individuals, inflows of institutional money into index-type ETFs tracking the KOSDAQ 150 are needed, but indicators such as the KOSDAQ 150’s price-earnings ratio (PER) currently struggle to gain credibility.
This same problem awareness was reportedly shared at a KOSDAQ market review meeting that the Financial Services Commission (FSC) convened in an emergency session early this month, gathering securities firms’ KOSDAQ market officials and analysts. At that meeting, broad consensus was reportedly reached on the view that there is a need to review ways to significantly reflect companies’ earnings metrics when introducing the KOSDAQ promotion-relegation segment system.
“In the current situation, the more retail individuals invest in index-tracking ETFs, the more funds flow into loss-making KOSDAQ companies,” an official in the financial investment industry said. “It is also true that as stock prices rise, it becomes more burdensome for institutions to invest.”
Indeed, pension funds, which net-bought 920.5 billion won worth in the KOSDAQ market last year, have net-sold 299.7 billion won this year through Friday. As a result, the KOSDAQ index, which rose 36.5% last year, has repeatedly surged and plunged this year, underperforming the KOSPI. On Friday, when the KOSPI surpassed 9,000 to set a record high, the KOSDAQ closed down 3.01% at 1,000.93. Its gain this year stands at just 8.2%.
“The U.S. Nasdaq 100 is also based solely on market cap, but it is difficult to simply compare the U.S., where global funds flow in, with Korea’s KOSDAQ market,” another financial investment industry official said. “Even if the KOSDAQ 150 is left as is, there is a need to consider devising a new benchmark-level index that reflects earnings metrics.”