[Asking About the Future of the Korean Capital Market] Market Vector Indexis "Strict Control in Korea, Regulations Need to Be Eased"

①-⑴Exclusive Interview with Joy Yang, Head of Product Management and Marketing at MarketVector
Providing Indexes to US Asset Manager VanEck
Collaborating with Korean Asset Managers on Value-Up Indexes

Editor's NoteAt the beginning of this year, financial authorities focused their policy efforts on enhancing corporate value by promoting a 'Corporate Value-Up Program' to resolve the undervaluation phenomenon in the domestic stock market (Korea Discount). After the Value-Up Program was unveiled in May, the domestic stock market saw a brief rise centered on beneficiary stocks, but it peaked in July and has been on a downward trend since. Due to uncertainties surrounding the second Trump administration's policies after the U.S. presidential election and concerns over the deterioration of the Korean economy amid strong dollar pressures, the KOSPI index even fell below the 2400 level, indicating a precarious situation. As concerns over foreign exchange losses intensified due to the high exchange rate, foreign investors' withdrawal has also accelerated. Asia Economy conducted a series of interviews with overseas institutions to explore what changes are necessary for foreign investment funds to flow into Korea. Through this, we seek solutions to expand foreign investors' inflow into the Korean market and examine the policy tasks that need to be addressed.

"The fact that Korea continues to maintain strict controls in the capital and foreign exchange markets remains an unresolved issue."

Joy Yang, Head of Product Management and Marketing at MarketVector Indexes. Provided by MarketVector Indexes.

Joy Yang, Head of Product Management and Marketing at MarketVector Indexes, stated this in a written interview with Asia Economy, citing accessibility issues for foreign investors as a factor hindering the resolution of the 'Korea Discount.'

Yang said, "This is the main reason why Korea is still classified as an emerging market despite its status comparable to other advanced countries in the global market," adding, "While the Value-Up Program Korea is currently attempting is certainly a definite path to improving investment sentiment in pursuit of market revitalization, it is also necessary to ease capital controls such as regulations for foreign investment." This is the first time MarketVector Indexes has given an interview to a domestic media outlet.

Korean Capital Market at Emerging Market Level... Value-Up Program’s Achievements Require a Long Journey

Korea has secured its status as an advanced country by ranking among the 'Top 10 Trading Nations' in the global trade market, but this is not the case in the capital market. Last month, Korea’s inclusion in the World Government Bond Index (WGBI) was confirmed, improving accessibility to the government bond market, but the stock market is still classified as emerging. Since MSCI (Morgan Stanley Capital International) designated Korea as a candidate for inclusion in the developed market index in 2008, the government has actively pursued capital market advancement, but Korea has not been included in the developed index.

Since 2014, Korea has even been excluded from the watchlist of countries with a high possibility of inclusion in the developed index. In June, MSCI maintained Korea’s status as an emerging market. Yang pointed to the 'highly uncertain regulatory environment' as the reason why Korea’s inclusion in the MSCI developed index has repeatedly failed. In particular, foreign investors have consistently pointed out that the ban on short selling does not align with global standards and is perceived as a regulatory risk that discourages investment in Korea.

MarketVector Indexes is an index provider that supplies various indices to VanEck, a U.S. asset management company. It develops country-specific customized indices, sector and commodity indices, ESG (Environmental, Social, and Governance), and various thematic indices. The company holds about 166 indices based on various asset classes, including nine indices linked to assets under management (AUM) exceeding $1 billion (approximately 1.4 trillion KRW). Recently, it has gained prominence in the digital asset field such as cryptocurrencies, blockchain, and tokenization by launching indices using top meme coins.

Yang predicted that it would take some time for the Value-Up Program to function properly and produce visible results. Referring to Japan’s case, he said, "Korea’s Value-Up Program is similar to Japan’s efforts to resolve the 'Japan Discount' issue by revising the Corporate Governance Code (CGC) in 2015. Japan also aimed to promote sustainable growth and enhance corporate value through corporate governance improvements." He added, "The Japanese stock market hit a historic high this year, marking a record in 34 years. It took almost 10 years for the Value-Up Program to work properly and lift stock prices. Similarly, Korea will need a long journey for the Value-Up Program to yield results."

Although it will take time for the Value-Up Program to settle in the market, Yang emphasized that it will ultimately have a positive impact on the Korean capital market. He said, "The Value-Up Program will contribute to securing transparency in corporate governance, a core value to resolve the globally undervalued 'Korea Discount.' I emphasize once again that whether Korean companies are seriously addressing the current issues will become clear over time."

Yang explained that Korea and Japan’s attempts to improve the capital market structure through the Value-Up Program are part of a global trend. He said, "The U.S. is also improving standards to strengthen corporate governance as investors’ demands evolve. For example, there is a program called 'B-Corp (Benefit Corporation)' that certifies companies according to a series of standards promoting governance improvements." He added, "These mechanisms are based on the rational idea that good management and governance are necessary for long-term and sustainable growth. This is in line with Korea’s Value-Up Program."

Success of Value-Up ETFs Depends on Recognition of Corporate Investment Value... Governance Improvement Essential

Regarding the Value-Up Exchange-Traded Fund (ETF) launched on the 4th, Yang pointed out that while it may be positive for short-term supply and demand, the essence lies in improving corporate governance. He said, "To attract foreign capital through the Value-Up ETF, it must deliver results beyond window dressing (portfolio adjustment purchases)." He added, "Ultimately, advanced corporate governance is necessary, and foreign investors particularly value transparency and clarity in disclosures. They believe these factors ultimately affect prices." He further stated, "To overcome the 'Korea Discount,' foreign investors must meaningfully participate in governance under a condition where transparency is fundamentally guaranteed when evaluating corporate value." This implies that beyond short-term trading for portfolio adjustments, attracting long-term capital requires corporate governance improvements to gain recognition of the company’s intrinsic investment value rather than merely expecting passive effects.

Yang explained that Korea’s ETF market is currently growing at a remarkable pace globally. He said, "Korea has one of the most dynamic ETF markets worldwide, with an AUM growth rate of about 30% this year. This growth is impressive beyond simply catching up with other advanced countries like the U.S." He added, "Especially on the demand side, investment convenience and investors’ confidence in leading investments using ETFs contribute to the rapid growth of the ETF market. At the same time, suppliers in the fund issuance market are fiercely competing and are rushing to introduce innovative investment solutions to respond to the ever-changing market and investor demands."

MarketVector Indexes also collaborated with several Korean asset management companies during the development of the Korea Value-Up ETF. Yang said, "It is a great honor to collaborate with several Korean asset management companies in developing the Korea Value-Up ETF." He continued, "Our mission is to accelerate financial innovation, and we see new opportunities in digital assets, blockchain, and tokenization. We want to cooperate with Korea in this field and provide investment leadership."