The South Korean government has introduced a new initiative aimed at boosting the country’s stock market and addressing the persistent undervaluation of its listed companies. Financial authorities in Seoul announced the “Corporate Value-up Program” in February 2024, a series of measures designed to encourage corporations to improve governance and enhance shareholder returns.
The program, led by the Financial Services Commission (FSC) and the Korea Exchange, provides guidelines and incentives for companies to voluntarily develop and disclose plans to increase their corporate value. These plans could include raising dividend payouts, buying back shares, and improving communication with investors. The initiative draws comparisons to a similar program in Japan that contributed to a significant rally in the Tokyo stock market.
The move comes as South Korea’s benchmark stock index, the KOSPI, has shown underperformance relative to other major global markets. The term “Korea discount” is frequently used by financial analysts to describe the phenomenon where South Korean companies are valued at lower multiples than their international peers. Factors often cited for this discount include complex corporate ownership structures known as chaebols, relatively low dividend payout ratios, and geopolitical risks associated with North Korea.
In a statement, the FSC said the program’s objective is to “resolve the ’Korea discount’ by promoting autonomous efforts of listed companies to raise their value, thereby allowing them to be properly evaluated in the market.”
The government’s focus on the stock market includes other proposed policies. President Yoon Suk Yeol’s administration has also announced plans to abolish a planned capital gains tax on income from investments in stocks and funds. Officials stated the goal of this tax policy is to support the 14 million retail investors in the country.
The performance of the stock market has been a topic of political discussion in South Korea. During the 2022 presidential election campaign, Lee Jae-myung, current leader of the opposition Democratic Party, pledged to usher in an era where the KOSPI could reach 5,000 points. The index has historically traded well below that level.
Following the announcement of the “Corporate Value-up Program,” the KOSPI experienced a rise as investor sentiment reacted to the news. According to data from the Korea Exchange, sectors such as banking and automotive, which have been noted for low valuations, saw notable gains. The government has stated that it will offer tax benefits and other incentives for companies that actively participate in the program and demonstrate a commitment to improving shareholder value. The specific details of these incentives are expected to be finalized in the coming months.
