South Korea’s small-cap Kosdaq index surges on report of tax breaks

[SEOUL] South Korea’s Kosdaq Index surged after a local media report that the government is planning to roll out tax incentives and take steps to increase buying of stocks in the small-cap gauge by pension funds and other institutions.

The Kosdaq jumped 3.7 per cent on Friday (Nov 28), while the benchmark Kospi Index fell 1.5 per cent. That marked the smaller index’s biggest daily outperformance since 2001, according to Bloomberg-compiled data.

South Korean shares have been on a tear this year, fuelled by bets on the artificial intelligence boom and optimism the government will deliver on election promises to lift stock prices. The Kospi has jumped 64 per cent so far this year, making it one of the world’s best-performing indexes. The retail-dominated Kosdaq has lagged that performance, although it is still up 35 per cent.

Biotechnology and robotics-related shares were among the biggest drivers of the Kosdaq rally on Friday. Peptron, a pharmaceutical stock, jumped 10 per cent.

The moves came after a Korea Economic Daily report that the government is planning measures as early as next month that include expanding income tax deductions for so-called Kosdaq venture funds, which invest a significant portion of their capital in stocks included in the index. It may also exempt pension funds and foreign institutional investors from stock trading taxes, according to the report, which cited unidentified sources.

The report was “making some buzz this morning,” said Shawn Oh, head of Korea cash equities at NH Investment & Securities. The latest measures are designed to lift the Kosdaq to the 1,000 level, he added. It closed at 912.67 on Friday.

SEE ALSO

China’s AI promise lures top Asia fund away from South Korea, Taiwan

World-beating stock rally creates new headaches in South Korean market

The country’s Financial Services Commission said that while it continues to review lifting the capital market, any details on the Kosdaq market support measures have not been finalised.

While the Kospi has been the world’s best-performing major equity index this year, the Kosdaq has suffered from a series of major companies relocating to the benchmark index. It is also dominated by retail investors, who have been more skittish than big funds this year. BLOOMBERG