People walk inside the Korea Stock Exchange (KRX) building, as stock markets in Asia as a whole are affected by growing political unrest over President Yoon Suk-yeol's role in martial law, in Seoul, South Korea, on December 9, 2024.
Daniel Singh | Anatolia | Getty Images
South Korean markets have had a dismal 2024, with the so-called “Korean discount” widening in stock markets compared to other global counterparts. The recent political unrest is expected to further consolidate this phenomenon.
The country's benchmark stock index, the Kospi, has lost more than 7% this year, and the weak performance of the South Korean market points to a “corporate appreciation” programme. Announced in February this year“Failed to process”Korea discount.“
The “Korean discount” refers to South Korean securities trading at lower valuations compared to their regional counterparts due to investor concerns about issues such as corporate governance at large family-owned conglomerates that have a significant impact on the country's economy.
Political turmoil in the country worsened investor sentiment, with the KOSPI performing less than expected MSCI Asia ex Japan index By 2.3 percentage points since Dec. 3, when President Yoon Suk-yul imposed martial law and then rescinded it within hours.
Vishnu Varathan, managing director and head of macro research for Asia ex-Japan at Mizuho Securities, said in a December 2019 report that the attempt to impose martial law led to a rise in the risk premium for Korean assets, thus dealing a setback to the “higher value programme.” 10 note.
Under Yoon, South Korea has strived to boost the country's stock markets and combat the “Korean rival” through a Japanese approach. program Which sought to improve corporate governance and increasing investor participation, among other things.
according to Data from the Korea Stock Exchangethe Cosby It has a price-to-book ratio of 0.86, while… The price-to-earnings ratio is 13.65 as of December 12. Both measures, which indicate how well investors value the index, Decreased from the previous year.
to comparison, Japan's Nikkei 225 The stock's price-to-book ratio is 1.44 while its price-to-earnings ratio is 15.90 as of December 11.
while Japanese stocks rose As it is It implemented measures to raise its marketsAnd South Korea was struggling. For example, the “Korea Value Up Index,” launched in September, which consists of 100 “best practice” listed companies that adhere to the “Value Up” program, has a P/B ratio of 0.99 and a P/B ratio of 0.99. -The profit ratio is only 10.29.
“The distractions resulting from Yeon’s ouster amid a fragile government and fragmented policies are likely to weaken and delay policy efforts to boost stock valuations,” Varathan said, adding that the balance of power in South Korea could shift in favor of large and influential conglomerates, which could stabilize the economy. “Korea Discount” more.
South Korea has several large family-owned global conglomerates, known as chaebol, which are usually controlled by the founder's family. These may consist of a group of companies or several groups of companies.
Notable major companies include market heavyweights such as Samsung Electronics, LG, SK and Hyundai. While they contribute significantly to the country's GDP, the complex shareholding structure of these companies means that investors have little influence over the strategic direction of the company.
The four conglomerates mentioned above account for about 40% of South Korea's GDP. According to South Korean media.
Market reforms could be set back by political turmoil, said Lauren Tan, director of Asia equity research at Morningstar, adding that the reforms would not be “derailed.”
“I think the longer it takes for a leadership change to take place, the more likely it is that investors will be sidelined,” she noted. “President Yoon is unpopular, and a peaceful transition away from his leadership would help.”
The trapped Yoon has He survived an impeachment vote over the weekend After members of the ruling People's Power Party withdrew from the country's parliament, the opposition parties pledged to continue efforts to remove him.
Jeff Ng, head of macro strategy for Asia at Sumitomo Mitsui Banking Corporation, said the “Korean discount” is still likely to persist into 2025 due to weak economic conditions, slowing exports and a weak Korean won.
“Investor confidence may return in the medium term, but a quick resolution of local uncertainty seems unlikely at this stage.”
