What Is the Korea Stock Exchange (KRX)?
The Korea Stock Exchange is a division of the much larger Korea Exchange (KRX, or the Exchange). Previously, Korea's stock market was a standalone entity. In 2005, the Korea Stock Exchange merged with the Korea Futures Exchange and the electronic market, KOSDAQ, to form the Korea Exchange.
The exchange is the only securities exchange operator in South Korea, making markets in equities, bonds, stock index futures, stock index options, and equity options. KRX's headquarters are in Busan, and it has an office for cash markets and oversight in Seoul.
- Previously a standalone stock market, today, the Korea Stock Exchange is a division of the much larger Korea Exchange (KRX).
- KRX's electronic trading platform is KOSDAQ, which is similar to the Nasdaq in the U.S.; the KOSPI, like the S&P 500, tracks the health of the exchange.
- South Korea's economy is attractive to some because of its stability and rapid growth rates.
- However, there are many risks that investors should consider before committing capital to the region.
- The easiest way to invest in Korea is via exchange traded funds.
The Korea Stock Exchange: Background
Since its inception in 1956, the Korea Stock Exchange had operated independently. Prior to its 2005 merger to form KRX, the Korea Stock Exchange created the Korean Securities Dealers Automated Quotations (KOSDAQ)—a trading platform similar to its American counterpart, Nasdaq, of the National Association of Securities Dealers (NASD).
In addition to launching electronic trading, some of the exchange's milestones include establishing a stock index futures and options market from 1996 to 1997, trading warrants in 2000, and equity options and exchange traded funds (ETFs) in 2002.
Today, investors can trade various instruments on the exchange including stocks, bonds, ETFs, and real estate investment trusts (REITs). KOSDAQ lists more than 1000 high-profile companies including Korea New Network, Imagine Asia, Macrogen, Daewon Media, FNC Entertainment, Genie Music, and SK Broadband.
How Does the Korea Stock Exchange Work?
In 2019, the KRX listed 2194 companies with a combined market capitalization (market cap) of $1.9 trillion. Normal trading sessions look the same as those of other major stock markets around the world. Trading opens at 9:00 a.m. and closes at 3:30 p.m. The market is open every day of the week except Saturday, Sunday and holidays (of which there are 13 in 2020). As with the S&P 500 in the United States, an index, the Korea Composite Stock Price Index (KOSPI) tracks the health of the exchange.
The Korea Composite Stock Price Index (KOSPI)
The KOPSI contains all of the common stocks that are traded on the exchange. The KOSPI was introduced in 1983 with a base value of $100 and today the index trades at around $2,500. As with other major indexes, KOPSI is calculated based on market cap and boasts daily trading volume in excess of multiple hundreds of million shares.
Several offshoots of the index track specific sectors, factor strategies, and market caps. The KOSPI 200 Index, for example, consists of 200 large companies in the stock market division. As of 2020, among the biggest holdings in the KOPSI include tech giant Samsung Electronics, automotive maker Hyundai Motor, and LG Chemical.
Korea Stock Exchange: Trading Considerations
The easiest way to invest in South Korea is with exchange traded funds that provide instant diversification in a single security traded on a U.S. stock exchange. Three key ETFs track the South Korean market. In addition to the iShares MSCI South Korea ETF (EWY) are the Korea KOSPI 200 ETF (HKOR) and the Franklin FTSE South Korea ETF (FLKR). This targeted access to Korean stocks extends to large- and mid-sized companies.
Benefits of Investing in South Korea
With its rare combination of stability and rapid growth rates, South Korea's economy is attractive for international investors.
- Rapidly growing: South Korea's economy is expected to continue growing at a rate of 3.9% to 4.2% percent per year through 2030, along with most Next Eleven (N-11) countries.
- Stable economy: South Korea's economy is a member of the G20 as an Organisation for Economic Co-operation and Development (OECD), with annual per capita income of more than $30,000, which means that it is very stable.
Risks of Investing in South Korea
However, there are also many risks that investors should consider before committing capital to the region. For example, three of Korea's largest industry sectors—automakers, financial services, and technology—could potentially experience setbacks that, in turn, would lead to market volatility.
- Geopolitical risk: South Korea is situated in one of the most militarized regions in the world, with a very unstable neighbor in North Korea.
- Reliance on exports: South Korea's economy relies heavily on exports, which can be detrimental during a global economic downturn.