SEOUL (BLOOMBERG) - South Korea's Kosdaq index of mainly small-cap technology stocks slumped on Monday (Aug 5), triggering the first trading suspension in more than three years, as investors sold on rising trade tensions with Japan.

The gauge, comprising 1,336 stocks of the nation's small- and medium-sized companies, slid more than 5 per cent before the Korea Exchange halted program trading for five minutes. The index recently dropped 7.1 per cent. The index has slipped nearly 15 per cent this year, the worst-performing index in Asian major markets.

Investors "have lost trust" in the nation's biotech and healthcare firms, many of which are listed on the Kosdaq, said Heo Pil-Seok, chief executive officer at Midas International Asset Management. After rallies stretching over years, there has been a spate of botched clinical trials and canceled licenses, Heo said.

Korea's disputes with Japan are also triggering a bigger outflow from the Kosdaq than from the benchmark Kospi, he said.

"Both the governments of South Korea and Japan are ratcheting up tensions instead of resolving the dispute," Mr Heo said. "There's concern that the feud with Japan would be negative more to small- and medium-sized firms, rather than conglomerates."

SillaJen Inc, popular among Korean retail investors, plunged 60 per cent over two trading days after a US monitoring committee recommended the firm halt its Phase III clinical research into its drug for liver cancer. HLB Inc, another favorite of Korean traders, slumped in June after saying it failed in a drug study. Unless there's positive news from the healthcare sector, the stock's unlikely to bounce back for a while, Mr Heo adds.