The Korea Composite Stock Price Index (KCSPI) was introduced in 1972 with a base index of 100 set to January 4 of the same year. The 35 constituent stocks were selected from the stocks traded on the Primary Market. The rapid expansion of the market in 1979 revealed that the 35 constituents alone did not adequately represent the overall market performance. Accordingly, a decision was made to introduce a system of realigning the constituent stocks with gilt-edged issues each year, and the base date was set as January 4, 1975 with a base index of 100.
With the growth of the securities market both quantitatively as well as qualitatively, concerns about the structural problems of price-weighted Dow Jones were raised. Taking into account the international trends of adopting a market capitalization based index, the KRX-Stock Market Division introduced a new market capitalization based index, KOSPI (Korea Composite Stock Price Index), in 1983. KOSPI, which is still in use today, was assigned a base index of 100 set to January 4, 1980.
KOSPI is based on all common stocks listed on the Stock Market Division of the Korea Exchange (KRX) and excludes preferred stocks. The stock price index is calculated using the actual price traded on the market and not the “base price” used for market management such as establishment of price change limits. When no market price is available for issues that are not being traded or have halted trading, the latest closing price is used.
The index is calculated using the Weighted Average Market Capitalization methodology where the price multiplied by the free float gives the market capitalization of its constituents. The base value of the index is 100 on 4th January 1980. The weightage of each company is arrived at by dividing the market capitalization of each company with the total market capitalization of all the companies. The larger the market weightage of the company the larger is the impact due to 1% change in its price on the index.
KOSPI is calculated as follows with Current Market Capitalization (=market capitalization at the time of comparison) as the numerator and Base Market Capitalization (=market capitalization as of January 4, 1980) as the denominator. In order to maintain a consistency of the index, when there is a change in the number of listed shares resulting from security offerings with or without capital increase, stock dividend, merger, etc., the current market capitalization and base market capitalization are readjusted as needed. KOSPI is updated on the KRX website every 10 seconds and is available in statistical KRX publication “KRX Review” on a daily, monthly, and yearly basis.
Electrical and Electronic Equipment constitute 21.63% followed by Services at 15.36%, Finance at 13.04%, Chemicals at 10.51%, Transport Equipment at 9.43%, Distribution at 7.28%, Metals at 3.38%, Electricity and Gas at 3.27%, Food and Beverages at 3.01% and other sectors at 13.08% for the sector allocation in the index.
The KOSPI has given a return of 2.06% on a year on year basis and has gained 3.01% year to date. The index reached an all-time high of 2228.96 in May 2011 and an all-time low of 93.1 in January 1981. The index has a Price to Earnings ratio of 9 in the current scenario.
Samsung Electronics has the highest weightage of 16.37% in the index followed by Hyundai with a weightage of 2.78%, KEPCO with 2.67%, Samsung C&T with 2.38%, Mobis at 1.89% and Kia Motors at 1.83% while others have less than 1.82% weightage each in the index.
