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KRX should forget about southeast Asia

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By Jonathan Breen
19 Apr 2016

South Korea has been one of the most active Asian equity capital markets in 2016 with high expectations that IPO volumes this year will be its largest on record. The figures are reassuring, but the KRX appears hell bent on wooing southeast Asian issuers to its stock exchange. Focusing on its strengths instead would be far more fruitful.

The Korea Exchange began the year with serious efforts to grow its brand abroad, keen to attract more listings from international issuers. It is understood to be working on simplifying requirements for overseas companies to list in Korea, including more flexibility in reporting financial statements.

Southeast Asian blue-chips appear to be the main target, with the KRX setting up specialist groups and a new marketing department to attract them. But while its efforts are laudable, it makes little sense for the exchange to focus on issuers in an area it has little relationship with.

Companies looking to go public in a country other than their own usually do so for more material reasons, say a business relationship or existing operations in that country. For example, Hong Kong’s attraction for many international issuers is its link to China. And the recent decision by the Vietnamese arm of LS Cable & System to list in Korea makes sense as its parent is South Korean.

But for the KRX, there is interest from other international issuers, which it needs to capitalise on.

For one, Chinese biotechnology firms are keen on Korea, which is a match made in ECM heaven given the 97% growth that the KRX Health Care Index has seen over the past two years.

For its part, the exchange has been soliciting Chinese firms through its representative office in Beijing and has found strong support in the process. There are already 11 Chinese firms listed in Korea, so there is no doubt its efforts to attract more companies will pay off. And what also works in the KRX’s favour is China’s mammoth traffic jam of IPOs, which will likely help drive firms into the arms of nearby Asian exchanges.

That’s where the KRX can find opportunities, especially if it works more towards promoting the Kosdaq. The Kosdaq, Korea’s bourse for small and medium businesses, has attracted W228.9bn ($200.3m) in IPOs during the first quarter of this year, up more than 500% on the same period in 2015. It has also landed the country’s only listing in 2016 from a foreign company — China Crystal New Material Holdings Co, which in January floated for $23.02m.

The performance of the index too has been better than the benchmark. The Kosdaq index posted returns of 18.92% in 2015 against Kospi’s negative 0.42%.

In addition, the Kosdaq is a punchy alternative for Chinese companies considering its US tech-heavy cousin, the Nasdaq. But according to bankers, trading of such small and medium tech stocks in the US is sluggish but the situation can be different in Korea thanks to plenty of onshore institutional investor interest.

Being ambitious is no bad thing. But the KRX needs to take stock of its position and realise that it is better off steering clear of southeast Asia. 

By Jonathan Breen
19 Apr 2016