[KOSPI Level-Up ②] "The New Administration Must Do This": A Look at Policy Proposals to Boost Stock Prices

Editor's NoteAs the presidential election in June approaches, the topic of "KOSPI Level-Up" has once again come to the forefront. Lee Jaemyung, the presidential candidate of the Democratic Party of Korea, has forecasted the era of KOSPI 5000, while Kim Moonsu, the candidate from the People Power Party, has pledged to break out of the so-called "Boxpi" (the boxed-in KOSPI range). Both candidates, calling in unison for measures to boost the stock market, also agree on the broader need to resolve the "Korea Discount" (the undervaluation of the Korean stock market) through improvements in corporate governance. However, their approaches differ in the details. Based on surveys and interviews with 20 domestic and international capital market experts, Asia Economy will, over three installments, diagnose the current status and challenges of the Korean stock market, examine what policies the next administration should pursue to shed the "Korea Discount" label, and analyze the key variables and obstacles that will determine whether the dream figure of 5000 can be achieved.

[KOSPI Level-Up ①] The Era of 5000: Dream or Reality? 20 Experts Weigh In

[KOSPI Level-Up ②] "What the New Administration Must Do" - Reviewing Policy Proposals to Lift Stock Prices

[KOSPI Level-Up ③-1] "A Strong Commitment to Value-Up Like Japan Is Needed... Clear Incentives and Penalties Required"

[KOSPI Level-Up ③-2] Achieving the Dream Figure Depends on Three Key Factors

What policies must the next administration pursue to usher in the era of KOSPI 5000? Just as the leading presidential candidates, who are all calling for a stock market boost, differ in their detailed approaches, there are also some differences in the diagnoses of capital market experts. However, there is unanimous agreement that KOSPI Level-Up will only be possible if the chronic "Korea Discount" (undervaluation of the Korean stock market) is resolved. Many experts emphasized the need for corporate governance reform, expanded shareholder returns, separate taxation of dividend income, and tax incentives for long-term investment.

According to a survey and interviews conducted by Asia Economy with 20 capital market experts on May 27, 40% of respondents (8 people, multiple answers allowed) cited "corporate governance reform and expanded shareholder returns" as the system the next administration should introduce to enhance KOSPI value. The reasoning is that only by making corporate governance more transparent to meet global standards and improving shareholder return rates, such as relatively low dividends, can the Korea Discount be resolved.

There was also a strong call for tax incentives benefiting both companies and investors. In particular, the separate taxation of dividend income (7 respondents), a pledge by Kim Moonsu of the People Power Party, was evaluated as a measure that could align the interests of major and minority shareholders and serve as an incentive to increase dividends. Tax benefits for long-term investment, such as applying different withholding tax rates on dividends according to the holding period (7 respondents), were also frequently mentioned.

Yoo Jongwoo, head of research at Korea Investment & Securities, said, "Rather than penalties, there is a greater need for incentives such as cutting dividend income taxes," and diagnosed, "Like Taiwan, we need to lower the dividend income tax and provide even lower rates for long-term stockholders." A representative from a business association also welcomed the pledge for separate taxation of dividend income, saying, "It will have the effect of encouraging long-term investment." Lee Junseo, former president of the Korean Securities Association and professor at Dongguk University, stated, "Dividend income reform is necessary," but also pointed out, "Since there could be issues with tax fairness, it would be better to provide tax benefits related to dividend income specifically for those who hold their shares long-term, to encourage longer holding periods."

Some experts argued that in order to improve corporate governance, which is cited as a major cause of the Korea Discount, it is necessary to amend the Commercial Act as pledged by Lee Jaemyung of the Democratic Party of Korea (4 respondents). Lee Namwoo, chairman of the Korea Corporate Governance Forum, emphasized, "Amending the Commercial Act to protect investors and introducing a discovery system (a system in which parties disclose evidence and related information before trial to facilitate fair trials and early resolution) are key," calling it "the first step toward governance reform." A partner at B Investment, who requested anonymity, also stressed, "Amending the Commercial Act is fundamental, but we also need systems to make dual listings more difficult and to mandate the cancellation of treasury shares. The level of 'submit a plan' requested by the Yoon Sukyeol administration did not bring about significant change, so stronger measures are needed." Lee Jeongdu, senior research fellow at the Korea Institute of Finance, pointed out, "There needs to be a cultural shift away from companies being run as the private domain of certain major shareholders."

On the other hand, business associations argue that amending the Commercial Act, which affects all companies, is too broad, and that simply amending the Capital Markets Act to target listed companies would sufficiently protect minority shareholders through measures such as lawsuits against boards of directors. They also opposed amendments to the Commercial Act that include "directors' duty of loyalty" and mandatory cancellation of treasury shares, arguing that these could lead to excessive litigation and threats to management rights, thereby undermining corporate management freedom and stability. A representative from a business association expressed concern, saying, "There is significant anxiety among companies about the possibility of a more stringent version of the already scrapped Commercial Act amendment being revived." He argued, "To restore the competitiveness of the capital market, what is needed is regulatory reform. For example, regulations limiting the voting rights of major shareholders to 3% actually serve as a burden and deterrent to listing." He further stated, "Compared to the five major economies (G5), only Korea imposes additional criminal penalties for embezzlement and breach of trust under the Criminal Act, as well as various aggravated penalty provisions. These should be relaxed to meet global standards. Along with relaxing the breach of trust law and reforming inheritance tax, bold investment support and tax policies are needed for corporate growth and stock market value-up."

Additionally, many experts pointed out that, above all, the fundamentals of companies and the entire industrial sector must be strengthened to achieve stock market value-up. Since the capital market pledges announced so far have focused on investor protection, more concrete measures to support corporate growth should be added. Former Chairman Lee stated, "The intrinsic value of companies must rise; everything else is secondary," adding, "Ultimately, this discussion must lead to restructuring of Korea's industrial structure." He also noted, "There are too many listed companies in Korea," suggesting the need for exchange reform. Park Heechan, head of research at Mirae Asset Securities, also emphasized, "It is necessary to reestablish economic growth and industrial policies," and said, "This is not simply an issue for the stock market, but a problem for the entire national economy."

Looking at the pledges announced so far ahead of the June presidential election, both Lee Jaemyung and Kim Moonsu have emphasized their commitment to boosting the stock market. However, Lee Jaemyung has focused more on structural reforms for minority shareholder protection and fair market order, such as amending the Commercial Act, institutionalizing the cancellation of treasury shares, and introducing a one-strike-out system for stock price manipulation. In contrast, Kim Moonsu has placed greater emphasis on tax benefits such as amending the Capital Markets Act, reducing or abolishing dividend income tax, and lowering the maximum rates for corporate and inheritance taxes. Previously, Democratic Party lawmaker Lee Soyoung's office proposed an amendment to the Income Tax Act that would allow separate taxation of dividend income for listed companies with a dividend payout ratio of 35% or higher, but this was not included in Lee Jaemyung's presidential campaign pledges. Hwang Sewoon, senior research fellow at the Korea Capital Market Institute, commented, "The difference is only in degree; the overall direction is similar. There is a common consensus on revitalizing the capital market and the stock market," adding, "The People Power Party is more pro-business, while the Democratic Party is more proactive in addressing the demands of individual investors."

However, capital market experts have expressed concern that both parties' presidential campaign pledges competitively include populist fiscal expansion policies aimed at boosting approval ratings. A senior official at a securities firm pointed out, "These could lead to fiscal deterioration and tax increases, which are likely to become direct and indirect burdens on the stock market," adding, "There needs to be a focus on fiscal efficiency."