South Korea’s Corp Reform: A Battle Against the Discount

Quick Look

• South Korea introduces the Corporate Value-up Programme to mitigate the “Korea Discount” and stimulate stock market valuations.
• The National Pension Service (NPS), the world’s third-largest pension fund, awaits details to adjust asset allocation.
• Comparisons with Japan’s market reforms spotlight potential benefits and investor scepticism regarding South Korea’s approach.
• Legal leniency towards chaebols and the necessity for more concrete actions are under scrutiny amid efforts for MSCI reclassification.
• Despite a sluggish economy and declining home prices, the government tackles high housing costs through financial aid and public housing.

South Korea is tackling the “Korea Discount” head-on. The government, alongside the National Pension Service (NPS), backs a new reform agenda. Dubbed the Corporate Value-up Programme, this initiative aims to enhance the valuation of South Korean stocks. Besides, it seeks to align domestic companies with their global counterparts by addressing factors like low dividends and the influence of chaebols.

Now, the world’s third-largest public pension fund plays a crucial role. It’s in a holding pattern, awaiting reform specifics to strategize asset allocation. The Financial Services Commission is also stepping up, suggesting tax incentives to boost voluntary reform adoption.

Chaebols’ Grip: Reforms Meet Resistance

Inspired by Japan’s market success, South Korea aspires to replicate this achievement. However, the approach faces criticism for its perceived superficiality, particularly concerning chaebol governance. The shadow of these conglomerates over the Korea Composite Stock Price Index (KOSPI)  remains a concern, with global investors calling for deeper, more impactful reforms.

Past attempts to curb chaebol power have seen limited success. These conglomerates continue to pose significant barriers to market fairness and corporate governance reform. Furthermore, the recent acquittal of Samsung Electronics Chairman Jay Y. Lee on serious charges underscores this challenge, raising questions about judicial leniency towards influential business figures.

Housing Aid Amid Economic Slowdown

With an ageing population and slow economic growth, the government aims to stabilize the housing market. Initiatives like affordable mortgages for newlyweds and expanded public housing seek to counteract recent sharp declines in home prices. Additionally, these measures reflect a broader strategy to address economic challenges, including a historically low fertility rate and a high home price-to-income ratio.

NPS Leads, Eyes on Korea’s Market Future

As South Korea navigates its way through these reforms, the world watches. With the NPS at the helm of change and a government committed to tackling longstanding issues, the journey towards overcoming the “Korea Discount” continues. The outcome of these efforts will not only redefine market dynamics but also set a precedent for corporate governance and economic resilience in the face of global challenges.