Launch of Worth-up Index appears inadequate to spice up the market
By Lee Yeon-woo
The market cheered in early 2024 when President Yoon Suk Yeol introduced his intention to implement the Company Worth-up Program, a scheme geared toward boosting Korea’s “undervalued” inventory market. Nevertheless, the early enthusiasm shortly gave solution to exterior challenges, stalling any sustained progress.
In accordance with market tracker TradingView, the benchmark KOSPI has seen a couple of 2.6 % lower this yr so far. The efficiency is sluggish in comparison with main economies, with only some, equivalent to China, Mexico and Russia, performing worse.
“Do you know that if the KOSPI index had grown consistent with Korea’s gross home product (GDP) over the previous 20 years, it will now be over 6,000? Calling it undervalued is sort of an understatement,” stated Park Yoo-kyung, head of rising markets economies at APG Asset Administration.
Park made these remarks on Thursday at a Monetary Supervisory Service (FSS) assembly with institutional traders, the place she represented a Dutch pension supplier.
Whereas short-term components just like the U.S. presidential election and a possible recession have weighed down not solely the Korean but additionally broader Asian markets, the Korea low cost has been a persistent, long-term problem.
Park famous that from 1993 to 2023, U.S. GDP quadrupled, whereas the S&P 500 elevated tenfold. By comparability, Korea’s GDP elevated sevenfold throughout the identical interval, however the KOSPI solely tripled.
This sluggish efficiency brought on the proportion of Korean shares within the MSCI Rising Markets Index to say no from 17 % in 2004 to 13 % immediately, whereas Taiwanese and Indian shares rose from 12 % and 5 %, respectively, to 19 %.
Market observers consider that low anticipated returns, regardless of excessive funding dangers, have brought on each overseas and retail traders to shrink back from the market. That is partly because of the export-driven nature of Korea’s economic system, which makes the inventory market significantly susceptible to exterior uncertainties.
Moreover, the market suffers from a noticeable lack of rising progressive firms. The Financial institution of Korea famous in its Might report that “the vast majority of high market capitalization firms in Korea are nonetheless dominated by giant manufacturing companies established earlier than the Nineteen Nineties, with little change on this development.”
Compounding these challenges is the shortage of transparency in company governance, which the federal government has recognized as a serious problem. Majority shareholders, significantly family-owned conglomerates, keep tight management, leaving minority shareholders with inadequate protections. To handle this and stimulate funding, the federal government launched the Company Worth-up Program in February.
As a part of the hassle, the federal government plans to launch the Worth-up Index within the fourth quarter. This index will characteristic firms which have demonstrated enhancements of their valuations and strengthened company governance practices.
Nevertheless, business participation has been low. Of the two,595 firms listed on the KOSPI and the secondary Kosdaq, solely 14 have made associated disclosures to this point, with most being monetary establishments.
Amar Gill, secretary basic of the Asian Company Governance Affiliation, additionally commented to the FSS that whereas the launch of the Company Worth-up Program is a step in the suitable route, whether or not it may possibly tackle the Korea low cost stays unsure.
