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South Korean officials unveiled measures on Monday to boost shareholder returns, as Seoul seeks to replicate Japan’s success in raising stock valuations with a corporate governance drive.
Last week, the Nikkei 225 climbed past its all-time high after a 34-year wait, vindicating a decade-long reform effort by Japan which included the introduction of a “name and shame” regime by the Tokyo exchange, encouraging companies to focus on raising their corporate value.
Mirroring Japan’s reforms, the Korean proposals include a new “Korea Value-Up index” to highlight companies that have improved capital efficiency, as well as tax incentives for businesses that prioritise shareholder returns.
Kim So-young, vice-chair of South Korea’s Financial Services Commission, said Seoul’s initiative would offer more incentives for Korean companies than those offered by Japan’s equivalent JPX Prime 150 index.
“About 20 per cent of Japanese companies joined the government programme to boost valuations. We are planning to provide stronger incentives than Japan so that more Korean companies can join our programme,” said Kim.
About two-thirds of companies listed on South Korea’s flagship Kospi index trade at a price-to-book ratio of less than one, meaning the market values them below the stated worth of their net assets.
Korean investors said the reform measures lacked details and means of enforcement. “The package announced today falls short of my expectations because it lacks forceful measures,” said Albert Yong, managing partner at Petra Capital Management in Seoul. “Some unspecified tax benefits and incentives were announced for those who co-operate, but there are no penalties for those who do not.”
The Kospi rose by almost 7 per cent over the first three weeks of February amid growing anticipation of bold government reforms. Last month, South Korea’s president Yoon Suk Yeol voiced his support for introducing a fiduciary duty to shareholders, while the country’s top financial regulator suggested Seoul would replicate Tokyo’s “name and shame” regime.
But the index fell slightly on Monday as investors expressed their disappointment in the reform announcement. “Today’s market dip was a classic example of ‘buy on rumours, sell on news’,” said Chaewon Lee, chair of Seoul-based Life Asset Management.
Ahn Hyung-jin, chief investment officer of Seoul-based Billionfold Asset Management, noted that Japan’s push to boost valuations had also got off to a slow start.
“This is just the beginning for Korea and should not be a one-off package,” said Ahn. “The government should continue to drive for change and some kinds of penalties are essential in case companies don’t change.”
South Korea’s business landscape is dominated by the country largest conglomerates, including Samsung, Hyundai, LG and SK Group, which are controlled by their founding families through a complex series of crossholdings in group affiliates. Earlier this month, a group of investors called on Samsung’s de facto holding company to increase dividends and institute share buybacks.
“It took about 10 years for Japanese measures to take effect,” said Lee, of Life Asset Management. “We’re just at the beginning stage.”
Additional reporting by Leo Lewis
