Last year in Korea's stock market, the number of shares reduced through share cancellations of treasury stock exceeded the number of shares added through paid-in capital increases and the issuance of convertible bonds (CB). When the number of shares on the market declines, the value per share rises. This is seen as listed companies responding to the government's call to cancel treasury stock, a development that some say is easing the chronic discount (undervaluation) of Korean stocks.
According to Daishin Securities Co.'s research center on the 16th, the supply of shares via paid-in capital increases and CB issuance in last year's stock market totaled 19.7 trillion won, while the scale of treasury stock cancellations reached 23.3 trillion won. As a result, net share supply came to minus (-) 3.6 trillion won. It was the second straight year that net share supply in the stock market turned negative, following 2024 when authorities pushed a domestic stock "value-up" policy. Net share supply in 2024 was -1.5 trillion won.
From 2018 to 2023, the supply via paid-in capital increases and CB issuance outweighed listed companies' cancellations of treasury stock.
Researcher Lee Kyung-yeon at Daishin Securities Co. said, "In the past, the stock market was a 'supply-dominant' market focused on fundraising, but as the scale of share cancellations for shareholder returns has grown beyond corporations' funding needs, a structural shift toward a 'supply-reducing market' has begun," adding, "This can be interpreted as a signal that the domestic market, long burdened by chronic oversupply, is closing the era of 'dilution' and entering an 'era of returns.'"
There were also instances in the past when share supply contracted temporarily. In 2017, share supply was -400 billion won, driven by a one-off factor: a large-scale cancellation of treasury stock by Samsung Electronics. According to Daishin Securities Co., Samsung Electronics accounted for 92.5% (about 13 trillion won) of the total cancellation amount at the time, and even in the following year, 2018, when net share supply turned positive again, Samsung Electronics made up 78.9% (4.9 trillion won) of the total cancellations (about 6.2 trillion won).
By contrast, starting in 2024, not only a few large-cap listed companies but many listed firms—led by financial holding companies—took part in cancelling treasury stock. In particular, last year's scale of treasury stock cancellations surged 133% from the previous year to a record high.
Lee said, "A reduction in share supply implies a structural rise in earnings per share (EPS)," and noted, "We have entered a virtuous cycle that drives a revaluation of the Korean market."
When share supply exceeded cancellations, shareholder value was heavily diluted due to frequent paid-in capital increases by listed companies, opaque partitioning listings, and the practice of using treasury stock to defend management control. In the past two years, however, the financial authorities have moved to curb listed companies' decisions that disadvantage shareholders, such as paid-in capital increases or partitioning listings, and, as calls for cancelling treasury stock have grown, share supply has contracted.
Lee said, "In a market where the number of shares declines, the per-share value rises even if a listed company earns the same profit."