The Kosdaq has risen about 19 percent this month, the best performance among major global equity indexes. But some of the speculative trading that had fueled volatility in the KOSPI has migrated to the junior bourse, leaving the smaller-cap market prone to sharper swings, market watchers said Wednesday.

The index hit a year-to-date high of 1,226.18 on April 27 before sliding from May, according to the Korea Exchange. It fell to 644.78 on July 30, a three-month low, before rebounding sharply to the 850 level.

The turnaround came as enthusiasm for semiconductor stocks cooled and tighter restrictions on single-stock leveraged exchange-traded funds (ETFs) dampened activity in the benchmark KOSPI. Bargain hunting after the Kosdaq's steep decline also helped fuel the rebound.

However, the shift has also redirected speculative capital into the market, with retail investors rapidly changing their positioning. Buy-side trading curbs have been triggered four times in seven sessions since July 31.

Between July 1 to 31, individual investors bought a net 1.16 trillion won ($819.1 million) of the KODEX Kosdaq 150 Leverage ETF, which aims to deliver twice the index's daily return. From Aug. 1 through Tuesday, however, they sold a net 218.6 billion won of the fund and turned to the KODEX Kosdaq 150 Futures Inverse ETF, which gains when the index falls. Retail investors bought a net 37.8 billion won of the inverse fund this month.

Some of the biggest gains also appear to be driven more by momentum than improving earnings, casting doubt on the durability of the rebound.

On Monday, when the Kosdaq surged 6.97 percent in a single session, 11 Kosdaq-listed companies hit their daily price limits of 30 percent. Yet eight of them were loss-making, with several having remained in the red for an extended period. Some of the day's biggest gainers were also companies at risk of being placed on regulatory watchlists under tighter listing-maintenance rules.

"The Kosdaq's recent outperformance is likely to prove temporary," said Lee Jun-young, an analyst at Eugene Investment & Securities. "If large-cap stocks such as semiconductor names regain momentum, capital is expected to rotate back towards the broader market, eroding the Kosdaq's relative advantage."

Analysts say sustained gains will be difficult without deeper reforms to improve the quality of the market, including removing chronically weak companies, attracting more promising listings and rebuilding investor confidence.

Over the past 20 years, 1,353 companies have joined the Kosdaq, while just 415 have left. The market's total capitalization expanded 8.6-fold during the time, but the index rose only 1.6-fold.

The government is moving to weed out marginal firms and promote higher-quality companies in a broad market overhaul.

The minimum market capitalization required to maintain a Kosdaq listing rose to 20 billion won from 15 billion won on July 1. Stocks trading below 1,000 won are also now subject to delisting criteria.

The first watchlist designations are due Thursday. Companies that fail to regain compliance for 45 consecutive trading days within the following 90 sessions could face delisting.