LS Securities "Value-up Policy May Lose Momentum"

LS Securities predicted on the 4th that the declaration and lifting of martial law overnight would stimulate political risk.

At 10:28 PM on the 3rd, President Yoon Suk-yeol declared martial law through an emergency statement. At 4:30 AM on the 4th, the State Council approved the lifting of martial law.

Kim Yoon-jung, a researcher at LS Securities, explained, "This measure, evaluated as an arbitrary and irrational move, will highlight domestic political risk," adding, "Since the exchange rate and Korean stock market-tracking overseas ETFs increased volatility overnight immediately after the martial law declaration, short-term volatility accompanied by foreign investor capital outflows may increase."

She continued, "The corporate value-up program is a major government policy task this year," and analyzed, "The necessary bill amendments, which should serve as the driving force for policy implementation, have not been quickly passed and remain pending." She added, "The martial law incident has turned on a red light regarding the current administration's leadership and its ability to maintain power," and "there is a risk of losing the driving force and the main agent of policy implementation."

Researcher Kim judged, "Japan's corporate value enhancement policy, which serves as a role model for the value-up program, has been preceded by a decade of corporate governance reform efforts," and "this policy task, which requires continuous and long-term efforts to settle, has entered a new phase." However, she explained, "Since the Financial Services Commission and Korea Exchange have long considered resolving the Korea discount as a major task, the nature of the policy itself is unlikely to change significantly."

Kim also said, "From the perspective of improving corporate governance, this can be interpreted as a positive phase," adding, "Although the bill to abolish the financial investment income tax has not yet passed even a week before the end of the 2024 regular National Assembly session, uncertainty is limited as the Democratic Party has confirmed abolition as its party stance." She added, "At this point, when downward pressure on the stock market has further expanded, there is likely to be growing calls to accelerate the implementation."

She further stated, "While the corporate value-up program may lose momentum under the Yoon Suk-yeol administration, considering that the Democratic Party prioritizes amendments to the Commercial Act in addressing the Korea discount issue, positive changes are expected in terms of corporate governance improvement tasks."