Daishin Securities said on the 26th that with the so-called Korea discount (undervaluation of the Korean stock market) addressed by the passage of the "third Commercial Act amendment" mandating the cancellation of treasury shares at a National Assembly plenary session, an institutional foundation has been established. However, it noted that because much of the policy expectations have already been priced in, the key variable going forward will be the balance between corporations' core business competitiveness and shareholder returns.
On the 25th, the "third Commercial Act amendment" passed the National Assembly plenary session. When the third Commercial Act amendment takes effect, corporations must cancel newly acquired treasury shares within one year. For existing treasury shares, a six-month grace period will be given. If the cancellation obligation is violated, fines of 50 million won will be imposed on individual corporate directors.
Jeong Hae-chang of Daishin Securities said, "This legislation is the third stage of fundamentally overhauling the 'governance opacity' and the 'controlling-shareholder-centered decision-making system,' which have been cited for decades as chronic causes of undervaluation in the Korean stock market," adding, "Through the Commercial Act revision, 'treasury share purchases' will now directly translate into a reduction in shares outstanding, returning to the global standard that enhances the intrinsic value of shares."
When treasury shares are canceled, the number of shares in circulation decreases, creating a structure in which per-share value rises. Even assuming the same corporate value and total dividends aggregates, the effect of higher earnings per share (EPS) and dividends per share (DPS) occurs, making it regarded as a means to enhance shareholder value.
According to Daishin Securities, by the first quarter of 2026, approximately 20 trillion won worth of treasury shares, based on market prices, will have been canceled. Jeong said, "As a policy that had long remained at the level of expectations translated into actual action, a sharp rally emerged, centered on low-PBR sectors such as securities, insurance, and banking."
However, it assessed that with the bill's passage, the catalyst of "legislative expectations" has entered a fading phase. Jeong said, "Now market attention will move beyond the legal compulsion itself to how much 'substantive change' corporations show in quarterly earnings announcements after the regular March shareholder meetings," adding, "Rather than strategies centered on specific sectors such as financial holding companies, we need to check from a bottom-up perspective the concreteness of each corporation's treasury share cancellation plans and shareholder return policies, and whether shareholder-meeting season pledges are being realized."
In particular, it viewed maintaining a balance between core business competitiveness and shareholder return policies as a yardstick for sustainability. Jeong said, "Shareholder returns should not end as a simple act of distributing asset, but must prove they can be used as tools to structurally improve return on equity (ROE)," forecasting, "Assessing whether the balance between growth investment (CAPEX) and shareholder returns is being properly maintained will serve as a driver of future stock price gains."