[Initial Insight] K-Value Up, Remove the Fear of Oeg-in

The government and financial authorities are busy preparing policies to resolve the Korea Discount (the undervaluation of the Korean stock market), an issue that has been pointed out for over 20 years. Experts in the capital market are showing a positive attitude toward the direction of the corporate value-up program promoted by the government.

One participant in the capital market commented, "We have been calling for governance improvement for 20 years, and seeing the president, the media, and investors all together calling to overcome the Korea Discount is deeply moving." The more desperately it is desired, the greater the anxiety becomes. If government policies fail to change the overall framework of the Korean stock market and remain fragmented and temporary measures, they could degenerate into a "flash event for the general election."

Experts have sought the causes of the Korean stock market's undervaluation from various angles. Controlling shareholders have not made efforts to boost stock prices (taxes), have invested in companies without sharing profits (dividends), and directors have only acted as rubber stamps for controlling shareholders (board of directors). The Korean market has been particularly focused on protecting controlling shareholders but has been vulnerable in protecting minority shareholders and general investors.

An expert in the capital market said, "The stock market is a very risky market, and to encourage investors to boldly enter this market, they need to be given a shield," adding, "Investor protection policies should be the top priority of policy. Next should be incentives, and lastly, tax reform." Incentives are good, but investors must first be given a shield to protect themselves. The core of the Korea Discount resolution policy is the removal of fear.

On the 15th, the KOSPI index opened at 2,643.81, up 23.39 points (0.89%) from the previous trading day, as dealers were working at the Hana Bank headquarters in Jung-gu, Seoul. On the same day, the USD-KRW exchange rate opened at 1,332 won, down 3.4 won. Photo by Kang Jin-hyung aymsdream@

The value-up program, scheduled to be announced by the government at the end of this month, is expected to include measures requiring listed companies to publicly present targets such as price-to-book ratio (PBR) or return on equity (ROE) to raise corporate value. It is also expected to include plans to create an index composed of companies that have increased shareholder value and to launch exchange-traded funds (ETFs) that track this index.

These government attempts clearly send a positive signal to the market. Since the Korean market is so undervalued and the leading tech stocks have price burdens, this could serve as a transitional opportunity to raise the level of low-PBR stocks by one step. From the perspective that foreign funds that left the Chinese market and domestic standby funds will enter, this is very positive.

However, when asking whether these measures will remove the long-standing distrust and fundamental fear of foreigners toward the Korean market, the answer is close to "No." The most recent examples, such as the court's judgment on the Samsung C&T and Cheil Industries merger and the complete ban on short selling, send a signal to foreigners that the Korean market is still a "shieldless" dangerous place. The fact that directors' fiduciary duties under the Commercial Act still only apply to the company and not to shareholders is also significantly below international standards. On one hand, there is regulatory intervention in financial holding companies' retained earnings and interest rate controls on loans and deposits, while on the other hand, authorities demand PBR improvement, which can cast doubt on the sincerity of these policies.

To achieve successful policy outcomes, the corporate value-up program must be gradual, consistent, and persistent. It requires a bone-cutting effort centered on investor protection, not just election-season sweet talk. The corporate value-up program is a golden opportunity to change the constitution of our stock market and could be a "masterstroke" to delay the lame-duck period of the Yoon Suk-yeol administration. However, if it remains a fragmented policy emphasizing only shareholder returns such as dividend increases and share buybacks, the market will be briefly excited but will tremble in fear again.

This content was produced with the assistance of AI translation services.