More than half of the stocks listed on the domestic stock market are categorized as low price-to-book ratio (PBR; market capitalization ÷ net worth) stocks, which is reported to be below 1. With poor corporate performance and increased political uncertainty following the Dec. 3 martial law incident, low PBR stocks have increased compared to the beginning of the year.
According to the Korea Exchange on the 27th, among the 2,450 stocks in the KOSPI and KOSDAQ markets (excluding special-purpose acquisition companies and preferred stocks), 55.6% (1,363 stocks) had a PBR of less than 1 as of the previous day. This is an increase compared to January 2 of this year, when 44.3% (1,052 stocks) of 2,376 stocks had a low PBR. A PBR of less than 1 indicates that the current stock value is lower than the price one would get if they sold all the assets the company holds and closed the business.
The government initiated a corporate value enhancement program at the beginning of the year to expedite the reassessment of corporate value; however, it has not achieved the expected results. Instead, as the earnings outlook for domestic listed corporations is revised downward, the sluggish stock market continues. The unexpected variable of the Dec. 3 martial law incident is preventing foreign investors from returning to the Korean stock market.
Since the second half of this year, both the KOSPI and KOSDAQ indices have been declining every month. As of the previous day, the year-to-date decline rates for the KOSPI and KOSDAQ indices were 8.5% and 22%, respectively, placing them among the lowest of major countries' stock market indices worldwide.
However, the consensus is that for the value enhancement program to succeed, it is important to continue pursuing it steadily. Japan has also implemented policies to enhance corporate value for over a decade.
As a short-term task, it is highlighted that more corporations need to disclose and implement corporate value enhancement plans. Currently, only 87 listed companies have announced such plans. The listed companies argue that support, such as tax incentives previously mentioned by the government, is necessary to promote disclosures.
There are claims that the increase in low PBR stocks could be seen as an investment opportunity. According to Independent Research Pluto Research, there are 30 corporations with a PBR of less than 0.3 and a market capitalization of over 500 billion won. These include Lotte Shopping, Emart, and Hyundai Department Store, all of which are significantly affected by the domestic economy.
Lee Sang-min, head of Pluto Research, noted, "Recently, Lee Jae-myung, leader of the Democratic Party, remarked that 'corporations with a PBR of less than 0.3 should face hostile mergers and acquisitions (M&A),' indicating a growing awareness of the issue across party lines. As consumer sentiment indexes plummet, the likelihood of a domestic stimulus package may arise, making low PBR domestic stocks a worthy investment consideration."