Exodus of Kosdaq-listed firms raises alarm

Charts of the benchmark KOSPI and the junior Kosdaq bourses are seen on an electronic board at a dealing room in this undated file photo. Yonhap

A record number of companies in the past 11 years are moving to the benchmark KOSPI after being listed on the secondary bourse Kosdaq, in what is seen as a bid to capitalize on investors’ growing preference for the KOSPI.

While companies can expect better funding, as well as an upgraded corporate image, the exodus of promising players is leading to concerns that it will hamper the junior market's growth potential, which in turn can drag down the economy.

It also contrasts with the Nasdaq, which has numerous global tech-innovation companies and is on par with the New York Stock Exchange in terms of funding.

According to the country’s sole bourse operator, the Korea Exchange, Monday, a total of six Kosdaq-listed firms have already moved to the KOSPI or plan to do so this year.

This is the highest number since 2003 when the figure was also at six.

The six companies this year include Paradise Group, a casino and resort conglomerate that seeks to transfer to the KOSPI by July.

The group was listed on the Kosdaq in November 2002. It previously sought to move to the KOSPI in 2013 but dropped the plan because investor sentiment toward firms coming from the secondary bourse was not favorable, according to sources familiar with the matter.

“But things have changed over the years,” a source said. “The company is expected to benefit from favorable investor sentiment toward tourism-related stocks, such as Kangwon Land and Lotte Tour, if it successfully moves to the KOSPI.”

Paradise has mostly remained in the lower 1,300 won level since last week, an improvement from the 1,200 won level in February.

By moving to the KOSPI, businesses expect an inflow of money from passive funds that invest based on indexes.

Investors' preference for KOSPI-listed stocks is also intensifying following the announcement of the government’s Corporate Value-up Program, which was unveiled in February to boost undervalued stocks.

As the KOSPI has many undervalued stocks, more investors have pulled out their money from the Kosdaq to invest in the KOSPI, betting on their high potential for growth on the back of the Corporate Value-up Program.

Analysts raise concerns that the Kosdaq-listed companies, many of them tech startups, may struggle to source capital in the midst of investors’ departure to the KOSPI.

“In that regard, the government should ensure the KOSPI and the Kosdaq benefit equally from the market valuation scheme,” Daishin Securities analyst Kim Jung-yoon said.