The Korea discount (undervaluation of the Korean stock market) cannot fundamentally be resolved through improvements in corporate governance or expanded dividends. Korean corporations must find solutions in strengthening their fundamentals and securing future growth drivers.
Choi Jae-won, a professor at Seoul National University's Department of Economics, attended the 'Capital Market Activation and Financial Stability Conference' on the 13th and said, 'The key to value-up is the recovery of growth drivers through corporate innovation.'
Professor Choi noted, 'The prevailing view is that the low price-to-book ratio (PBR) of the Korean stock market is due to weak corporate governance or insufficient shareholder return policies, but this is only half of the diagnosis.'
He explained regarding the PBR, 'It is not simply a high-low valuation indicator, but a measure that reflects future growth potential compared to past investment history.' The low PBR of major Korean corporations implies the absence of innovative growth.
Professor Choi also pointed out the structure of the Korean stock market, which is centered on value stocks. He stated, 'Most of the top market capitalization companies in our stock market are large corporations based on low-growth manufacturing, leading to an inevitable discount.' He noted, 'These corporations are concentrated in tangible assets, and their proportion of research and development is low.'
In contrast, the global market is being led by innovation companies based on intangible assets such as platforms, artificial intelligence (AI), and biotechnology. This structural difference causes global investors to turn their backs on the Korean market.
Professor Choi said, 'For true value-up, long-term efforts are needed to foster innovative corporations and create a growth-based ecosystem.' He added that 'policies focused on shareholder returns or governance, as currently practiced, are not effective for value-up.' He continued, 'The variables that most influence the PBR are indicators of growth such as return on equity (ROE), R&D investment, capital expenditure (Capex), and the age of corporations.'
He also mentioned methods for bringing stock prices closer to a company's intrinsic value, such as delisting, hostile takeovers, and short selling. Professor Choi said, 'In cases of delisting and hostile takeovers, a relatively accurate judgment of the essential value of corporations can be made.' He added, 'Moreover, through short selling, stock prices can also approach intrinsic value.'