Korean Composite Stock Price Index (KOSPI)

What Is The Korean Composite Stock Price Index (KOSPI)?

The Korean Composite Stock Price Index, or KOSPI, is the index of all the common stock in the Korean Stock Exchange that represents the Korean Stock Exchange and is comparable to the S&P 500 in the United States.

The stock exchanges of developed countries worldwide have indices tracking the top players in the market. 

For example, the USA has the S&P 500, the Nikkei 300 Index in Japan, and the Nifty50 in India. Similarly, a series of indices measure the performance of the Korean stock market overall, one of which is known as the Korean Composite Stock Price Index. 

One of Asia’s most widely tracked indices, the Korean Composite Stock Price Index, constitutes a few multinational giants like Samsung and Hyundai.

Basically, the Korean Composite Stock Price Index is a market-capitalization-weighted index, which means the firms with the highest market value exert the greatest influence over price movements. 

KOSPI 200 is one of the most well-known indices. It tracks the top 200 publicly traded companies on the Korean Exchange. As it tracks the 200 largest publicly traded companies, movements in the index are generally considered to be overall Korean stock market movements. 

Origin of the Korean Composite Stock Price Index (KOSPI)

It replaced the Dow-style KCSPI (also called the Korean Composite Stock Price Index) in 1983. Starting with a base value of 100, KOSPI ended its first month of trading with a closing high of 122.52.

During the mid-80s, against the backdrop of the weak dollar, low oil prices, and low international interest rates, Korean exports increased dramatically, and the economic growth rate of Korea returned to a high level. This, in turn, led to Korean markets soaring to new heights.

Investors had a newfound confidence in Korea’s economy and economic growth. To reap yields from Korea’s economic growth, investors pumped money into Korean Markets, leading to more than an 8-fold Increase in this price index to a value of 1000 by the 1990s.

Through foreign direct investment and investors putting money into the Korean market, the trade deficit soon turned into a surplus, and Korea’s foreign debt started decreasing slowly in the aftermath of the KOSPI. 

By the end of its 30th birthday, the Korean Composite Stock Price Index was trailing only the Taiwan Stock Exchange and Hong Kong Stock Exchange and had already surged to a new high of 2000 points in 2007. With approximately a 20-fold increase since its foundation, it stood at around 1800 in 2012.

Understanding KOSPI and Its Components

Debuted in the early 1980s, KOSPI rolled out several indices over time, like KOSPI 200, KOSPI 100, KOGI Corporate Governance Index, and KRX 100. Ultimately, KOSPI 200 became the most famous, as it covered 70% of the market share of the Korean Stock Exchange.

As of July 2021, the Korean Composite Stock Price Index has over 880 components. The top 10 stocks by market capitalization are:

All-time highs of the index: 

• Intraday: 3316.08 in June 2021
• Closing: 3305.21 in July 2021

Generally following the line of tracking specific industries or dividend stocks, it also comes with several other products that track the prices of futures, options, and sovereign bonds.

Investment Procedures for Foreigners

A foreign investor may appoint custodian banks as standing proxies to trade futures and options contracts published on the KRX (through custodian bank agreements and standing proxy agreements to facilitate trading). 

In place of investors, a custodian bank creates accounts with futures firms and foreign exchange banks, makes deposits and withdrawals, and keeps track of investors’ properties. 

To perform a foreign currency exchange arrangement, a foreign investor should nominate foreign exchange banks to carry out their transfers and transactions. 

The majority of foreign exchange institutions also operate as custodian banks and standing proxy firms. To trade futures and options listed on the KRX, a foreign investor needs to identify securities and futures firms. The following are the key takeaways from the abstract:

• Since it covers 70% of the market share of the Korean Stock Exchange, investors use KOSPI 200 to benchmark the performance of stocks and funds in the Korean market. 

• Note that while KOSPI refers to the entire family of indices, many market participants call the KOSPI 200 simply the KOSPI.

• Indices like KOSPI, KRX, etc., are part of the group of Korean Stock Exchange indices.

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