Governance Forum: "Jeong Eun-bo, Exchange Chairman, Self-Praise with Incorrect Facts"

The Korea Corporate Governance Forum (hereinafter the Forum) sharply criticized Jeong Eun-bo, Chairman of the Korea Exchange, who praised the domestic stock market's 'value-up' policy as being successfully underway, calling it "a self-congratulatory statement based on incorrect facts."

On the 14th, the Forum issued a commentary under the name of Chairman Lee Nam-woo, stating, "The claim by Chairman Jeong that 'the Korea discount (undervaluation of the Korean stock market) has been largely resolved' is completely untrue."

Earlier, on the 11th, at a New Year's press conference, Chairman Jeong had said, "We evaluate that the value-up is progressing quite successfully," adding, "The repurchase and cancellation of treasury shares have increased historically at the largest scale, and the dividend payout ratio has also been significantly raised."

The Forum responded by saying, "From overseas, the Korean stock market is rapidly becoming an insignificant, peripheral market," and criticized, "It is surprising that Chairman Jeong, a former orthodox economic bureaucrat, holds such a complacent view of our capital market." They also pointed out that there was no mention at the New Year's press conference of core issues related to resolving undervaluation and value-up, such as shareholder rights, investor protection, board independence, cost of capital, and capital allocation.

The Forum also took issue with the fact that the KOSPI has fallen about 3% over the one year since Chairman Jeong's inauguration on February 15 last year. According to the Forum, "According to calculations by Morgan Stanley Capital International (MSCI), as of January this year, the price-earnings ratio (PER) of the Korean market was 8.4 times and the price-to-book ratio (PBR) was 0.96 times, which are lower valuations compared to 11 times and 1.1 times respectively in April when the value-up plan was being formulated," adding, "During the past year, while the Exchange has been promoting the value-up policy, the domestic stock market has actually retreated."

The Forum identified the reason for the loss of investor confidence in the Korean stock market as 'dual listings.' They pointed out that the dual listing ratio of the domestic stock market (the market value of shares held by listed companies in other listed companies divided by the total market capitalization) is 18%, which is higher compared to the U.S. (0.4%), China (2.0%), Japan (4.4%), and Taiwan (3.2%).

The Forum criticized Chairman Jeong for drawing a line on the issue of dual listings of subsidiaries at the press conference by saying that the judgment should be left to the companies and investors involved, stating, "Chairman Jeong, who should be leading the resolution of the Korea discount, seems to have forgotten that the Exchange's primary mission is investor protection." They also claimed that Chairman Jeong lacks understanding and sincerity regarding the capital market compared to Hiromi Yamaji, CEO of the Japan Exchange Group (JPX).

The Forum also downgraded the plan Chairman Jeong announced to include Korea in the MSCI developed market index. They said, "If Korea is included in the MSCI developed market index, it could be a disaster rather than a blessing," explaining, "Foreign investors will sell almost all small and mid-cap stocks that they do not need to hold, and since domestic large-cap stocks are not large enough by developed market standards, only a very few large-cap stocks such as Samsung Electronics, Hyundai Motor, and KB Financial will maintain their presence." They added, "The weighting in the MSCI Emerging Markets (EM) index has already fallen below 10%, so instead of discussing the futile inclusion in the developed market index, why not set realistic goals to catch up with Taiwan in the EM index?"

Regarding the Forum's criticism, the Korea Exchange rebutted, saying, "Core issues of value-up such as shareholder rights, investor protection, and board independence are detailed in the criteria for selecting excellent value-up companies announced on the same day." Regarding dual listings, they emphasized, "Since 2022, we have been continuously making efforts to protect investors up to the recent announcement of amendments to the Capital Markets Act," adding, "The part mentioned at the New Year's press conference referred to guaranteeing corporate autonomy in decisions on 'physical division,' and it means that efforts to protect investors in cases of dual listings will continue."