South Korea Launches Reforms to Combat Stock Market Valuation Gap

In a strategic move to enhance the attractiveness of its stock market, South Korea’s financial authorities have unveiled a set of corporate reform measures aimed at addressing the persistent “Korea discount” — the phenomenon where South Korean companies are valued lower than their international counterparts. This initiative, as reported by Reuters on February 26, 2024, draws inspiration from Japan’s successful strategies that led to a surge in its stock market to record highs.

The Financial Services Commission (FSC) of South Korea introduced the “Corporate Value-up Programme,” which encourages listed companies with low valuations to voluntarily report their plans to improve shareholder returns and governance structures. To assist companies in this endeavor, the government will provide a detailed guideline within the first half of this year.

Additionally, the FSC is considering the implementation of tax incentives, including preferential tax treatment, for companies that actively work towards enhancing their market value and increasing returns to shareholders. An index showcasing firms with strong shareholder value is also set to be introduced, signaling a comprehensive approach to lifting the overall value of South Korean companies.

In line with the government’s efforts, the South Korean stock exchange announced the formation of a team dedicated to advancing corporate governance, complemented by the national pension fund’s decision to invest in companies committed to value enhancement.

These reform measures come at a time when the benchmark KOSPI index experienced a 1% decline, primarily influenced by sectors such as automakers and banks, which are often viewed as undervalued. This decline occurred despite recent rallies in anticipation of the government’s reform proposals.

Finance Minister Choi Sang-mok expressed confidence that the government’s continuous efforts would eventually eliminate the “Korea discount,” underscoring the commitment to improving the valuation of South Korean companies in the global marketplace. The initiative aims to address the root causes of the valuation gap, including low dividend payouts and the influence of large, opaque conglomerates known as chaebols, thereby enhancing the competitiveness of South Korean companies on the global stage.