Seoul attempts to close the “Korea discount” for stocks

South Korean stocks suffer from the “Korea discount” – with the country still classified as an emerging market, investors are reluctant to pay a premium.

South Korea is planning to close the “Korea discount”, says Joori Roh for Reuters. Companies in Asia’s fourth-biggest economy have lower valuations than comparable businesses in other markets because of “low dividend payouts” and the “dominance of opaque conglomerates known as chaebols”.

Foreign investors have long complained about onerous administrative requirements to trade in Seoul and a lack of corporate information in English. South Korean firms also “confirm dividend amounts weeks after the so-called ex-date” (the day a stock starts trading without the value of its next dividend), making it difficult for income investors to calculate their returns.

South Korea is still classified as an emerging market by index provider MSCI. Indeed, its stocks account for 11.5% of the MSCI Emerging Markets index, much to the chagrin of the country’s politicians. In June MSCI again declined to upgrade Seoul to developed-market status, says Dave Sebastian in The Wall Street Journal. Poor accessibility for global investors and tight curbs on short-selling are hampering the market. Seoul has taken steps to liberalise its currency market, but it will need to do much more to secure an upgrade by MSCI. That could trigger $44bn in foreign inflows into local stocks, says Goldman Sachs.

Local assets could do with a lift. The Kospi stock index is down 20% this year, while the won is at a 13-year low against the US dollar. The won’s fall has been driven by a trade deficit that reached a record high in August, says Sam Kim on Bloomberg. Higher energy and commodity prices have swollen the import bill, while semiconductor shipments fell 7.8% last month. Car-makers also face new “headwinds” as Washington offers generous subsidies to US electric-vehicle firms.

Recommended

Sterling continues to slide after Friday’s mini-Budget
Currencies

Sterling continues to slide after Friday’s mini-Budget

The pound has continued to fall hard and is heading towards parity with the US dollar. Saloni Sardana explains why, and what it means for the UK, for …
26 Sep 2022
Beating inflation takes more luck than skill – but are we about to get lucky?
Inflation

Beating inflation takes more luck than skill – but are we about to get lucky?

The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank…
26 Sep 2022
Johann Rupert: the Warren Buffett of luxury goods
People

Johann Rupert: the Warren Buffett of luxury goods

Johann Rupert, the presiding boss of Swiss luxury group Richemont, has seen off a challenge to his authority by a hedge fund. But his trials are not o…
26 Sep 2022
The hidden cost of employee share schemes
Investment strategy

The hidden cost of employee share schemes

Paying employees in shares comes at a cost to investors – but it isn’t always easy to see how much, says Stephen Clapham.
26 Sep 2022

Most Popular

Could gold be the basis for a new global currency?
Gold

Could gold be the basis for a new global currency?

Gold has always been the most reliable form of money. Now collaboration between China and Russia could lead to a new gold-backed means of exchange – g…
22 Sep 2022
Share tips of the week – 23 September
Share tips

Share tips of the week – 23 September

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
23 Sep 2022
Paypal, bitcoin, and the weaponisation of money
Bitcoin & crypto

Paypal, bitcoin, and the weaponisation of money

Recent events have shown how both business and governments can “weaponise” money and shut down dissent. What to do? Buy bitcoin, says Dominic Frisby.
22 Sep 2022