[Inside Chodong] One Year of the Value-Up Program: How Much Has the Korea Discount Been Resolved?

One Year Since the Launch of the Value-Up Program
Disclosure Participation Remains Low
Shareholder Returns Improve with Share Buybacks and Dividend Increases
Continued Efforts Needed to Address the Korea Discount

Last year, the hottest topic in the stock market was undoubtedly the corporate value-up program. The market, which had been repeatedly weak at the beginning of the year, quickly reversed course following the announcement of the value-up program plan, and stocks with low price-to-book ratios (PBR) drew significant attention from investors.

It has now been one year since the implementation of the value-up program. In January last year, the government announced plans to introduce the corporate value-up program, encouraging listed companies to voluntarily analyze the reasons for the undervaluation of their corporate value and to establish response strategies, in order to address the so-called Korea Discount (the undervaluation of the Korean stock market). In May, value-up guidelines were released, and from that month, listed companies were required to prepare mid- to long-term plans to enhance corporate value and to disclose the results of their implementation evaluations once a year. In September, the Korea Value-up Index was introduced, and in November, an exchange-traded fund (ETF) based on this index was listed, demonstrating steady progress in the value-up initiative. However, concerns about the loss of momentum for the value-up program emerged due to political uncertainty that surfaced in December last year, and interest in the program waned. In particular, after the announcement of the value-up program, the market emphasized that tax support measures were crucial for its success, but these ultimately fell through due to the effects of political uncertainty.

Over the past year, only 146 companies participated in value-up disclosures, including 114 companies listed on the KOSPI and 32 on the KOSDAQ. Given that there are 850 KOSPI-listed companies and 1,797 KOSDAQ-listed companies, the participation rate is clearly low. Notably, out of the 105 companies that make up the Korea Value-up Index, only 58 have made official value-up disclosures, amounting to roughly half.

The Korea Discount also remains persistent. According to the Korea Exchange’s calculation of key KOSPI investment indicators reflecting 2024 year-end financial statements, the PBR of the KOSPI200 stood at 0.8 times in early May, significantly below both the 23-country average of 3.5 times and the 24 emerging markets average of 1.8 times. The price-to-earnings ratio (PER) of the KOSPI200 was also just 11 times, lower than the average for developed countries (21.3 times) and emerging markets (15.2 times).

However, there have been some achievements in shareholder returns, such as share buybacks and dividend increases. According to the Korea Exchange, there have been 142 share buyback cancellations so far this year, already reaching about 77% of last year’s total of 185. The amount of share buybacks has reached 15.43 trillion won, surpassing last year’s annual total of 13.91 trillion won. Dividends have also increased. Among the 807 KOSPI-listed companies last year, 565 companies, or 70%, paid cash dividends, distributing a total of 30.3451 trillion won?a 10.5% increase compared to the previous year. The average dividend per company also rose from 4.92 billion won to 5.37 billion won.

The value-up program is now at a turning point. Next month, the Korea Value-up Index will undergo rebalancing (changes to its constituent stocks), and a presidential election will also take place. In this rebalancing, the number of constituent stocks will be reduced from 105 to 100, with up to 30% of the stocks expected to be replaced. The presidential election is inevitably critical to the continuity of the value-up program.

Given that resolving the Korea Discount has long been a key goal for Korea’s capital market and that the government has made continued efforts toward this end, the value-up program is expected to continue in some form. Enhancing corporate value and, through this, raising the value of the Korean stock market cannot be achieved overnight. If the process of increasing value is carried out step by step and the results accumulate over time, the Korean stock market will eventually be properly valued.