South Korea’s Strategy to Mirror Japan’s Corporate Success

On Monday, that is 26th February, South Korea has announced that they are going to reform a plan for the listed companies in order to boost the shareholder returns for the eventual result of reducing the “Korea discount” on stock prices but they fell short of market expectations. 

As the “Corporate Value-up Program” companies prioritize the stakeholder returns in their management practices, they will get “bold incentives” and tax benefits which was announced by the Financial Services Commision in a statement on the very day. 

In the third quarter, South Korea is claiming to introduce “Korea Value-up Index” which will be mirroring Japan’s JPX 150 Index that includes the companies showcasing exemplary practices. 

“The disappointment comes from the fact that companies are not required to take any actions in the short term,” claimed Seol Yongjin, who is an analyst at SK Securities Co. “Investors expected specific incentives to be announced today but now the government said those details will be disclosed later this year.”

Over the last month of January, Korean stocks have experienced a significant surge driven by the endless government discussions on the reform initiatives. The President Yoon Suk Yeol has committed to eliminate the perceived “Korea discount” which is associated with the local shares is the fundamental focus. 

“There are no specific ways on how the government would make companies follow the measures to improve their corporate value so there is a selloff on disappointment,” is what the analyst at Hana Securities, Ahn Youngjun said.

The Korea Exchange will additionally release the key financial metrics of the mentioned companies arranged by sectors, like price-to-book ratio and return on equity. In order to facilitate this initiative the exchange operator will be setting up a dedicated department and advisory board. 

The financial regulator has claimed to amend the stewardship code for the requirement of pension funds.

”There was speculative money buying last week and selling in reaction to today’s regulatory announcements which did not exceed expectations,” claimed Alan Richardson, a fund manager at Samsung Asset Management. “Nevertheless, the trend is positive and progress on Korea’s corporate value program is a continuing theme after elections.”