South Korea announces initiatives to strengthen stock markets and address the 'Korea discount'

• The Financial Services Commission of South Korea disclosed information about its "Corporate Value-up Program," which focuses on maximizing shareholder returns by offering tax benefits and other incentives.
• Analysts frequently undervalue the country's stock markets, referring to this as the "Korea discount."
• Tokyo markets have reached record highs thanks to measures adopted by Japan, which aims to support its stock markets.

On Monday, South Korea's financial regulatory body announced measures to enhance corporate governance, following Japan's example, in an attempt to bolster its undervalued domestic markets and tackle the "Korea discount."

The Financial Services Commission of Korea revealed information about its "Corporate Value-up Program," which focuses on maximizing shareholder returns through various incentives, including tax benefits, and motivates listed companies to establish and publicly disclose valuation enhancement plans on a voluntary basis.

The FSC announced measures to increase the value of stock markets in Korea, which is often seen as undervalued by analysts.

Tokyo markets have hit record highs for the first time in 34 years, and the FSC recognized the similarities between its program and Japan's.

On Monday, Japan's stock index surpassed 39,000 points, reaching a new high, due to strong earnings and the government's efforts to improve corporate governance and increase shareholder returns.

The Korea Value-up Index will be introduced by the FSC for institutional investors, including pension funds. ETFs tracking this index will be listed to facilitate retail investors' access to these companies.

Japan's JPX Prime 150 index includes the country's top-performing companies.

Daniel Yoo, head of global asset allocation at Yuanta Securities Korea, views the general direction of the measures as positive but believes they lack specifics on how corporations will increase dividend payout ratio, stock buyback, and cancellation.

Yoo stated to CNBC that accomplishing its goal would necessitate extra efforts.

The FSC announced that a detailed guideline will be finalized and a web portal will be set up in June, and companies can disclose their "value-up" plans in the second half of 2024.

According to Jonathan Pines, lead portfolio manager of Asia ex-Japan at Federated Hermes, some investors steer clear of Korean stocks, and those who do invest eventually sell at a significant discount to value.

Pines stated that waiting for a stock price to reach an objective assessment of intrinsic value in a well-regulated market is optimistic and risky.

While Japan's Nikkei has gained 17.5% this year, South Korea's stock market has lost 0.2%.

This story was contributed to by Naman Tandon, Lim Hui Jie, and Clement Tan of CNBC.