South Korea’s ‘value-up’ initiative hits obstacle with only 0.7 percent company participation

(MENAFN) Nearly three months after South Korea's government introduced the “Corporate Value-up Program” in May, participation among South Korean companies has been notably low. As of the latest data, only eight companies have released value enhancement disclosures, which accounts for just 0.3 percent of the 2,585 firms listed on the Kospi and Kosdaq exchanges. When including the ten firms that have preannounced their disclosures, participation only reaches 0.7 percent. The program, which was launched to address the “Korea Discount” – the persistent undervaluation of Korean stocks – encourages companies to voluntarily disclose their plans for enhancing corporate value, including their goals, measures, and shareholder return policies.

The program’s participation has been predominantly from the financial sector, which has been underperforming in the market. Leading the way, Kiwoom Securities was the first to disclose, followed by major banking holding companies such as Shinhan Financial Group and Woori Financial Group. Other institutions, including KB Financial Group and Kakao Bank, have issued prenotices. This activity has contributed to a significant rally in financial stocks, with the KRX Bank Index climbing 34 percent, the KRX Insurance Index increasing by 31 percent, and the KRX Securities Index rising by 20 percent this year. However, despite these gains in the financial sector, other sectors have been reluctant to participate, largely due to the program's lack of binding requirements.

On Friday, LG Electronics became the first of Korea’s top ten conglomerates to commit to the program, issuing a prenotice with a promise of official disclosure by the fourth quarter. This move followed heightened pressure from financial regulators, including a recent meeting led by KRX CEO Jeong Eun-bo, which urged executives from Korea’s major conglomerates – Samsung, SK, LG, and Hyundai Motor – to lead the initiative. The low participation rate in Korea stands in stark contrast to Japan’s experience, where a similar program launched in March 2023 saw 13 percent participation within four months, rising to 28 percent by the end of the year.

In Korea, over 50 percent of listed firms have a price-to-book ratio under one, indicating significant undervaluation. This is a higher proportion compared to other developed or thriving markets. Despite the government's efforts, the benchmark Kospi has shown minimal growth over the past three months, moving slightly from 2,683 on May 2 to 2,701 by the end of August. During this period, the Kospi fluctuated considerably, peaking at 2,891 on July 11 and dropping to 2,441 on August 5, with no clear signs of a stable uptrend. The ongoing value-up efforts have yet to restore foreign investors' confidence in the Korean stock market amid increasing global volatility.

MENAFN27082024000045015839ID1108604506