South Korea’s policy to boost its national company value has fallen short of expectations, causing significant stock price drops in the KOSPI market.
The S. Korean government released a policy called the ‘Corporate Value-Up Program’ aimed at enhancing companies’ corporate value on Feb. 26.
However, the stock prices of automobile and financial sectors, which had previously risen in anticipation of benefits, are now falling sharply. This is because the policy did not put as much pressure as expected to improve the low Price-to-Book Ratio (PBR).
As a result, foreign investors and institutions have started selling, which has caused the KOSPI to decrease by 0.6% (16.46 points) to 2650.29 compared to the previous trading day.
The Financial Services Commission of South Korea recently introduced a program called the Corporate Value Up Program. This program is designed to prioritize shareholder returns by providing various incentives, such as tax benefits, to encourage listed companies to voluntarily set up and disclose plans that aim to enhance their valuation.
However, as the market opened today, most of the stocks that were previously considered to be beneficiaries due to their low PBR (Price-to-Book Ratio) experienced a drop in their prices. In the stock market, a lower PBR indicates an undervalued stock price.
Some of the companies once believed to have low PBR stocks are experiencing a decline in their share prices. Kia’s shares have dropped by 3.6% to 114,100 won, while Hyundai Motor is down by 3.3%.
The financial sector, which had recently seen a rise in stock prices because of expectations of increased shareholder returns, started the day with losses across the board.
Hana Financial Group is down 8.9%, with KB Financial (-7.3%), Shinhan Financial Group (-7.3%), Woori Financial Group (-3.6%), Kiwoom Securities (-6.6%), Samsung Life Insurance (-7%), and Kyobo Securities (-3%) are also showing weakness.
This appears to be because the government’s Corporate Value-Up Program did not meet the initial expectations of the market. The program was anticipated to include various measures to address the ‘Korea Discount’, meaning a tendency for S. Korean companies to have lower valuations than global companies.
However, the detailed plan released lacked key elements such as the revision of the Commercial Act, including ‘shareholders’ interests’ in directors’ duties, and tax benefits for companies that showed significant progress, which experts and companies had been demanding.
Although the plan included a method of providing incentives to companies that have increased their value, it has faced criticism for being too superficial.
Starting from July, the government has decided to make it mandatory for listed companies to disclose their own corporate value enhancement plans. They will also provide annual benefits such as commendations of excellent companies and preferential selection of exemplary taxpayers.
An industry insider commented, “The measures are literally hollow, lacking any of the measures the market had expected,” raising doubts about whether it will actually change companies’ practice.
It has also been criticized that the government’s efforts to improve the low Price-to-Book Ratio (PBR) of companies are not enough.
The government has announced a detailed plan to address this issue. The plan includes publishing key investment indicators such as PBR, Price-to-Earnings Ratio (PER), and Return on Equity (ROE) of each company on the exchange’s website on a quarterly basis. Additionally, the dividend propensity and yield will be announced once a year.
However, compared to the Tokyo Stock Exchange in Japan, which discloses low PBR improvement measures on a monthly basis and can put strong pressure on listed companies with the possibility of delisting, the enforcement of this plan seems to be weaker.
