When asked a securities firm official recently how they view the "redistribution of excess profits" being discussed in politics, the official waved it off. It is not a policy that has been finalized, and market watchers who look at the macroeconomy or corporate earnings do not have grounds to assess it quantitatively, the official said.
But as the meeting warmed up, the official asked in return. The question was, "From the perspective of a foreign investor in Korea, if the government says it will in some form share profits because corporations earned a lot of money, would you want to invest in such a market?"
The official said, "Expanding dividends or regulating dual listings can be seen as investor-friendly policies, but redistributing excess profits is a completely different issue," adding, "The fundamental reason Korea's stock market is not recognized as a developed market and remains 'in a pen' is that such policy uncertainty keeps recurring."
◇ Debate over redistributing semiconductor excess profits weighs on stock prices
Foreign investors have continued a massive selling spree in the Korean market this year.
According to the Korea Exchange (KRX) on the 21st, foreign investors posted a net selloff of 191.9 trillion won in the stock market this year (Jan. 2–July 20). In the first half (Jan. 2–June 30) alone, the net selling amounted to 178 trillion won. At the time, some read it as selling for portfolio rebalancing after a sharp rally in domestic stocks, but with foreign money continuing to leave even in July, when the market corrected sharply, some analysts say it is hard to explain it as mere profit-taking.
Foreign selling was concentrated in the semiconductor sector. As domestic semiconductor stocks, including Samsung Electronics(005930) and SK hynix, had risen more than other global competitors, the desire to take profits likely grew.
Industry watchers also estimate that the government's recent move to put on the table a plan to socially redistribute "excess profits" in semiconductors likely weighed on sentiment. The very discussion of treating profits earned by corporations as a "target for social allocation," rather than for future investment or shareholder returns, can be perceived by foreign investors as serious policy uncertainty.
In contrast, individuals posted a net purchase of 142.4 trillion won over the same period. As foreigners unloaded large volumes, individuals kept buying stocks, and the trend accumulated.
◇ "Excess profits generated by corporations belong to shareholders"
Concerns are growing that the government's discussion of distributing excess profits could shake the foundations of the capital market, including the stock market. In particular, critics say policy consistency is being damaged as the government, which has emphasized revitalizing the stock market, brings up a discussion that runs counter to shareholder capitalism.
A professor in the business administration department at a private university in Seoul said, "In shareholder capitalism, excess profits generated by corporations belong to shareholders who took on the risk," adding, "When corporations earn more than expected, the government demanding redistribution of profits through additional taxes or levies completely denies shareholder capitalism." The professor added, "In such an environment, which corporation will work hard to make money, and who would invest in companies listed in such a market?"
Some also say the government's policy is moving in the opposite direction at a time when global semiconductor corporations competing with ours are engaging in a race for an overwhelming lead on the back of full support from their own governments. Major semiconductor corporations such as TSMC and Micron are accelerating investment in research and development (R&D) and advanced production facilities with massive subsidies and tax benefits.
At home, however, there are concerns that raising the issue of redistributing excess profits rather than expanding support for corporations could weaken industrial competitiveness. In particular, the semiconductor industry is a representative cyclical industry in which profits secured during booms must be reinvested in research and development, next-generation processes, and large-scale facility investment to prepare for downturns.
The securities industry points out that the repetition of such discussions itself is a factor in our market's discount. A securities firm official said, "In Korea, whenever a specific sector generates high revenue, debates recur about recouping excess profits," adding, "From an investor's perspective, the most avoided risk is policy risk that is hard to predict."
The official cited as a prime example the "windfall tax (excess profits tax)" discussion pushed two years ago for the financial sector. When net income at financial companies such as banks, securities firms, and insurers surged, a plan was floated to recoup part of the profits in the form of a "mutual growth finance contribution." At that time, financial stocks were key beneficiaries of the corporate value-up program, but as the windfall tax debate spread, their share prices fell sharply.