SK Securities researchers Na Seung-doo and Heo Seon-jae published an analysis on the 6th projecting that the KOSDAQ Select index, expected to launch by the end of September under the government's tier system, will comprise 88 stocks selected based on Q1 annualized net profit and equity with ROE above 5%. The government is advancing this initiative to revitalize the KOSDAQ market and restore investor trust by creating a quality-focused benchmark. The researchers noted that financial soundness and governance requirements will likely reduce exposure to loss-making bio sectors while increasing representation of stable performers.
SK Securities Constructs 88-Stock Virtual Index Based on Q1 Financials
SK Securities constructed a virtual KOSDAQ Select index consisting of 88 stocks using Q1 annualized net profit and equity data. The selection criteria required KOSDAQ companies to record a return on equity (ROE) of 5% or higher based on Q1 figures. The researchers stated that the index "is expected to reflect qualitative requirements including financial soundness and governance standards."
They added that "companies with large losses in the bio sector are likely to see weight adjustments, and those criticized for opaque governance structures and owner-related risks are highly likely to be excluded." The government's KOSDAQ activation plan centers on establishing the KOSDAQ Select index by selecting companies with both growth potential and stability.
Bio Sector Weight Decreases While Semiconductor Exposure Rises
Comparing the virtual index to the existing KOSDAQ150, the bio (healthcare) sector weight decreases from 18.0% to 12.5%, while semiconductor exposure increases from 21.3% to 26.1%. The researchers noted that "the characteristic KOSDAQ sector weights in software and IT hardware can be maintained at stable levels, which is worth noting."
They stated that "the strong policy commitment to KOSDAQ revitalization and market trust recovery is encouraging," adding that "the KOSDAQ Select index expected to be announced by the end of September is judged to serve as a catalyst for attracting domestic and international passive fund inflows."
KOSDAQ Q1 Operating Profit Growth Outpaces KOSPI Ex-Samsung
The KOSDAQ market's combined operating profit growth rate in Q1 reached 84.9% year-over-year. This figure more than doubles the operating profit growth rate (41.5%) of KOSPI excluding Samsung Electronics and SK Hynix.
Na Seung-doo and Heo Seon-jae stated that "the billing for the phase where excessive concentration was justified by fundamentals has ended," adding that "excess returns in the next phase will come not from the entire index but from 'selection' — that is, from small and mid-cap stocks with earnings and soundness."
FAQ
What criteria did SK Securities use to construct the virtual KOSDAQ Select index?
SK Securities used Q1 annualized net profit and equity data to select KOSDAQ companies recording ROE of 5% or higher, resulting in a virtual index of 88 stocks. The researchers indicated that financial soundness and governance requirements would also be reflected in the final index composition.
How does the sector composition of the virtual KOSDAQ Select index differ from KOSDAQ150?
Compared to KOSDAQ150, the virtual KOSDAQ Select index shows bio (healthcare) sector weight decreasing from 18.0% to 12.5%, while semiconductor exposure increases from 21.3% to 26.1%. Software and IT hardware sector weights remain stable in the virtual index composition.
