Foreign investors in the South Korean stock market attribute the “Korea Discount” to several unresolved issues, including the lack of transparency in trading guidelines compared to China, according to a new report published by the Korea Capital Market Institute (KCMI).
The report, “Market Accessibility of Korean Capital Markets: Viewpoint of Foreign Institutions,” released on June 28, features anonymous interviews with 45 employees from 15 global financial institutions, including asset management firms, commercial banks, and hedge funds, who candidly shared their views.
A market maker identified as A remarked, “A hallmark of advanced markets is open competition with equally applied rules and regulations. Unlike Hong Kong, Singapore, Australia, and Japan, which do not discriminate between foreign and domestic financial companies, the Korean market seems to offer unequal market participation opportunities and rule application for foreign firms.”
A system trader known as B said, “Korean market guidelines are less transparent compared to advanced markets like Hong Kong and Singapore, and even lag behind China,” adding, “Although China has more restricted market participation and tradable products, its trading guidelines are clear.”
The report also highlighted concerns about South Korea’s ban on short selling (selling borrowed stocks), implemented last November. A representative from a global asset management firm, referred to as C, argued, “Short selling plays a crucial role in providing overall market liquidity and price discovery, so it is not an issue confined to specific sectors like hedge funds. Restricting short selling reduces market diversity and competitiveness.”
Foreign investors also pointed out the lack of English disclosures from Korean companies and emphasized the need for English-language materials on policies and regulations. Choi Soon-young, a senior research fellow at the KCMI who authored the report, noted, “Most interviewees said that the Korean capital market should be considered an advanced market in reality, but it fails to deliver the expected level of efficiency.”
