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The growing concern about Korean companies’ lower valuations may prompt their Indian subsidiaries to list on the domestic stock exchanges soon.
The South Korean market regulator the Financial Services Commission, recently introduced a “Corporate Value-up” program that targetted the ‘Korea Discount’.
Despite faring well economically, South Korea’s benchmark KOSPI index rose by 35 per cent from 2014 to 2024, while that of Nasdaq surged by 256 per cent.
The term Korean Discount refers to investors’ undervaluation of South Korean stocks due to an inflated risk premium caused by various factors including geopolitical risks related to North Korea, corporate governance issues, limited foreign investor participation, and aspects of a company’s management or corporate structure.
Corporate value up programme
As part of the Corporate value up programme, FSC has directed corporates to set realistic goals, formulate plans and evaluate implementation. Since the guidelines are not mandatory, the FSC aims to encourage voluntary participation by offering tax incentives.
Companies must voluntarily disclose the progress of the plan on their websites and the stock exchange. The FSC will also promote disclosures in English to accommodate foreign investors.
Korean automobile giant Hyundai Motor India recently filed papers with market regulator SEBI to raise about ₹25,000 crore through an initial public offering. Similarly, other South Korean chaebols (family-controlled businesses) such as LG India and Samsung India may also tap into Indian primary markets.
The South Korean stock market was ranked 13th globally after its market capitalisation touched 2,558 trillion won last year. It accounted for 116 per cent of the Gross Domestic Product, said an analyst.
However, he added the market capitalisation of other advanced economies was much higher. The United States’ market capitalisation represented 166 per cent of its GDP and Japan was at 123 per cent. Among emerging economies, China’s market cap was 57 per cent of its GDP and India was at 91 per cent.
Suggesting sharp undervaluation, he said the Price-to-Book Ratio of South Korean companies reached only 1.05 times, while that of the US (4.55 times) and Japan (1.42 times). Among emerging markets, China, India and Taiwan fared much better, with price-to-book value of 1.13 times, 3.73 times, and 2.41 times.
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