A two-year-old South Korean scheme to draw foreign capital into local stocks has failed to realise its potential thus far, but has bolstered shareholder activism, according to financial industry players who shared their insights at Asia Asset Management’s recent investment forum.
The Corporate Value-add Programme was launched in February 2024 to address the so-called “Korean discount”, where stocks trade at relatively lower valuations compared to global peers. It includes measures such as tax reforms and voluntary disclosure to enhance transparency and corporate governance.
According to Daniel Yoo, head of global asset allocation division at Yuanta Securities Korea and one of three participants in a panel discussion at the forum in Seoul on May 20, the share of global investments in the Korean stock market remains small because foreign investors are put off by high volatility and low returns.
He said the average shareholder return rate in Korea is only around 30%, whereas it’s 90% in the US and 55% in Japan.
He suggested that the government should refine the value-add programme by strengthening shareholder policies to encourage long-term commitment from foreign investors and foster a more stable investment environment.
Another panellist, Je Ho Byun, director general of the Financial Services Commission’s capital markets bureau, said shareholder activism has improved since the programme was introduced. He said shareholders are more willing to voice opposition and pursue legal actions against listed companies.
According to the third panellist, Hyunyoung Hwang, research fellow at the Korea Capital Market Institute, the value-add programme plays a crucial role in improving market efficiency and transparency.
He highlighted voluntary reporting as one of the major changes introduced in the programme. It incentivises listed firms to disclose their three-year corporate value-add plans, including financial status and management strategies by providing benefits such as tax incentives.
Hwang said that as of last month, around 714 companies, representing 77% of Korea’s stock market capitalisation,have submitted their value-add plans to financial regulators.
