Despite Kospi bull run and value-up initiative, 'Korea discount' remains as six in 10 firms trade below book value

An AI-generated image of the Korean stock market's value-up program, including the increase rate for the Korea Value-up index, Kospi and Kospi 200 from January through April 23. [CHATGPT]

 
The Kospi has continued its upward trend despite escalating risks from the Iran war. Gains in the Korea Value-up Index have provided additional momentum, even outperforming the Kospi bourse, but structural limitations remain evident as six out of 10 listed companies still trade below their book value.
 
The Korea Value-up Index rose 62.48 percent from January this year through Thursday. During the same period, it outperformed both the Kospi, which gained 53.67 percent, and the large-cap Kospi 200, which rose 61 percent.
 

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The index, introduced in September 2024, selects 100 mid-to-large-cap stocks out of the top 400 companies by market capitalization, based on shareholder returns and corporate governance improvements, in an effort to address the so-called Korea discount — the undervaluation of Korean stocks compared to foreign stock markets.
 
Fund inflows have also increased for the value-up items. The net asset value of 13 value-up exchange-traded funds (ETFs) has risen by nearly 2 trillion won ($1.4 billion) since the beginning of the year and surpassed 3 trillion won.
 
The gains have been supported by stronger government policies aimed at boosting shareholder returns. According to the Korea Exchange, 409 listed companies disclosed new corporate value enhancement plans last month alone, bringing the cumulative total to 590. Following revisions to the Commercial Act, 99 companies have also disclosed plans to cancel treasury shares — a move typically seen as strengthening shareholder value.
 
Financial stocks, long affected by chronic undervaluation, are emerging as key beneficiaries of the value-up initiative. KB Financial Group surpassed a price-to-book ratio (PBR) of 1 in February — the first among domestic financial holding companies — while Shinhan Financial Group accelerated its efforts by announcing “Shinhan Value-up 2.0” on Thursday, which removes the cap on shareholder return ratios. Upon these developments, the KRX Bank Index has surged 24.81 percent this year.
 

 
“The expansion of dividends, combined with treasury share cancellations following revisions to the Commercial Act, has established total shareholder return as a key quantitative indicator for corporate valuation,” said Lee Kyung-yeon, a researcher at Daishin Securities.
 
However, concerns persist that the value-up rally may be overstated. Critics point out that the index is heavily weighted toward Samsung Electronics and SK hynix, meaning that the recovery in the semiconductor sector has played a major role in driving gains, and not the Korean stock market as a whole.
 
As of Wednesday, 513 out of 808 Kospi-listed companies — 63.5 percent — still had a PBR below 1. This marks only a 5.5 percentage point improvement from a year earlier, when the figure stood at 69 percent. Some 67 companies remain below a PBR of 0.3, indicating that their market value is far below their book value.
 
“There are limits to lifting the broader market when foreign capital is concentrated in a few sectors such as semiconductors,” said Lee Min-hwan, a professor of finance and business administration at Inha University. “Without underlying improvements in corporate earnings, the value-up effect is likely to remain only a temporary phenomenon.”
 
The government plans to further strengthen its value-up policy in the second half of the year. Starting in July, the Korea Exchange will introduce a “naming and shaming” system that publicly discloses, every six months, companies that fall into the bottom 20 percent of PBR within the same industry for two consecutive half-year periods.
 

A placard congratulating the Kospi surpassing 6,000 points is hung up outside the Korea Exchange Seoul office in Yeouido, western Seoul, on Feb. 26, 2026. [PARK YU-MI]

 
“If the bottom 20 percent is disclosed every half-year, the pace of change among low-PBR companies is likely to accelerate,” analyst Lee said. “The Korea discount is being addressed step by step, and this could eventually lead to a shift toward a Korea premium.”
 
Experts say the sustainability of the policy will be the key factor in maintaining the value of value-up.
 
Tai Hui, chief market strategist for Asia at J.P. Morgan Asset Management, had dubbed the Korea Value-up Index as a major “game changer” for the market. Hui also emphasized the importance of corporate communication, citing past cases in Japan where increased engagement with shareholders led to a revaluation of corporate value.
 
Some, however, point to the need for more substantive changes in corporate disclosures.
 
“Companies should be encouraged to clearly explain the reasons for compliance or noncompliance to ensure meaningful adherence to the principles,” said Lim Na-yeon, a research fellow at the Korea Capital Market Institute. “Institutional mechanisms to review and supervise the quality of disclosures also need to be strengthened.”


This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY PARK YU-MI [yoon.soyeon@joongang.co.kr]