The South Korean stock market saw a decline in valuation last year, despite a year-long push for a value-up policy aimed at enhancing corporate value.
According to the Korea Exchange on Jan. 13, the Korea Composite Stock Price Index recorded a price-to-book ratio (PBR) of 0.84 in 2024. PBR is calculated by dividing a company’s stock price by its book value, and a lower number indicates that the stock is undervalued. Last year’s PBR matched the record low of 2022 during the COVID-19 pandemic, the lowest since data collection began in 2002. Even during the 2008 global financial crisis, the PBR was higher at 0.94.
After the government announced its plan to introduce a “corporate value-up program” at a public discussion on Jan. 17 last year, foreign investors began to pour in funds. Foreign net buying increased from 3.48 trillion won in January to 7.86 trillion won in February, more than doubling. Japan’s stock market, which had already implemented value-up policies, also broke its 34-year record, further influencing investor sentiment. Goldman Sachs predicted that the government’s efforts to resolve the “Korea discount” through the corporate value-up program would be a key catalyst for additional gains, forecasting the KOSPI index to reach 2,850 within a year.
However, foreign investors’ expectations quickly turned to disappointment. Key policies promoted by the government faced obstacles due to opposition from the opposition party and large corporations, among other conflicting interests. The ruling party’s defeat in the April general elections made corporate tax cuts for value-up companies impossible. The revision of the Commercial Act aimed at improving small shareholder rights also shifted toward amendments to the Capital Market Act.
Foreign net buying continued until July, but nearly 23 trillion won flowed out after August. Park Sang-in, a professor at Seoul National University’s Graduate School of Public Administration, explained, “While Japan implemented fundamental corporate governance reforms in 2014 for its market value-up, Korea focused only on peripheral measures like corporate disclosure improvements, value-up funds, and dividend tax policies.”
As foreign buying slowed, individual investors also lost faith in the Korean stock market and left in large numbers. According to the Korea Securities Depository, Korean investors’ U.S. stock trading volume reached a record $510 billion last year, up 87% from $273.2 billion the previous year, and a staggering 9,708% increase compared to $5.2 billion in 2014.
While the KOSPI dropped 9.6% last year, overseas markets, especially in the U.S., performed strongly, with the Nasdaq rising about 30%. With the Korean stock market lagging globally, phrases like “Only foolish investors stay in the Korean stock market” and “The best way to make money is to stay out of the Korean market” became popular.
The number of companies with a PBR below 1, indicating their market value is lower than their liquidation value, increased compared to the previous year. Japan has also set raising its PBR above 1 as a key goal of its value-up policy.
The Korea Exchange reported that 573 KOSPI-listed companies had PBRs below 1 last year, up from 520 in 2023. Similarly, the number of KOSDAQ-listed companies with PBRs under 1 increased from 540 to 776 over the same period.
Leading stocks underperformed. Samsung Electronics closed the year at 53,200 won, down 32% year-over-year, dragging down the Korean market. Foreign investors withdrew about 11 trillion won from Samsung Electronics last year.
