Seoul attempts to close the “Korea discount” for stocks

South Korea is still classified as an emerging market

(Image credit: © Getty Images/iStockphoto)

published 21 September 2022

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.

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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.

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.