Kospi hits record highs, but most investors aren't feeling it

The Kospi has been setting record highs day after day, yet an equal-weight index — a gauge of how the broader market actually feels to most investors — has moved in the opposite direction. A deepening flow of money into Samsung Electronics and SK Hynix has driven the headline index sharply higher, while a large number of other stocks have been left out of the rally.

According to Korea Exchange data released Sunday, the KODEX 200 exchange-traded fund rose 33.42 percent over the past month. Over the same period, KODEX 200 Equal Weight, which tracks the KOSPI 200 equal-weight index, fell 3.76 percent.

The KOSPI 200 equal-weight index is calculated by rebalancing each constituent's weighting to an identical share every quarter, regardless of market capitalization. Unlike a cap-weighted index — where larger companies carry proportionally more influence — the equal-weight version narrows the gap between large-caps and small- and mid-caps.

The top holdings of KODEX 200 Equal Weight reflect that balance: LG Innotek at 2.51 percent, Samsung Electro-Mechanics at 2.34 percent, LG Electronics at 1.13 percent, SK Hynix at 1.11 percent, Daewoo Engineering at 1.1 percent and Hyundai AutoEver at 1.02 percent.

The cap-weighted KODEX 200 tells a very different story. Samsung Electronics accounts for 32.7 percent of the fund and SK Hynix for 29.29 percent, putting the two stocks' combined weight at 61.99 percent. In effect, the index's performance is determined almost entirely by those two names.

"The Kospi's rise is hard to call a genuine broad-based rally in terms of quality," said Kim Jong-min, a researcher at Samsung Securities. "It is a differentiated market where only a handful of key leading stocks are pushing the index up."

Some analysts argue that the country's first single-stock leveraged products have intensified the concentration. "After the launch of single-stock leveraged ETFs, retail money flowed out of existing semiconductor ETFs and Kosdaq semiconductor materials, parts and equipment stocks and piled into Samsung Electronics and SK Hynix," said Lee Jae-won, a researcher at Yuanta Securities Korea. "The unusually large share of trading volume captured by those two stocks drove the index to new highs, but the returns that most investors actually felt were lower, not higher."

The concern is that the deeper the concentration grows, the greater the potential volatility. The combined share of the semiconductor "big two" in total Kospi market cap crossed 50 percent for the first time on May 27, then expanded further to 50.9 percent based on the closing price on May 29.

"Last month's performance in the Korean market was the result of extreme concentration," said Kim Jun-young, a researcher at iM Securities, who described "FOMO" — fear of missing out — on specific sectors and stocks as simultaneously pushing up individual share prices and their volatility. He added that "if the momentum turns, the possibility of a sharp and rapid decline cannot be ruled out."