Will 'Political Risk' Become a Turning Point for Value Up? "Will Accelerate Governance Improvement"

Korea Value-Up Index Weak Amid Political Turmoil
Concerns Rise Over Collapse of Value-Up Policy
"Opposition Party Actively Pursues Governance Reform... Could Be a Value-Up Opportunity"

As political uncertainty deepens day by day in the domestic stock market, concerns are growing about the sustainability of the value-up policy. However, the securities industry believes that the value-up policy is unlikely to be abandoned as it is, and rather, if the opposition party gains strength and pushes policies focused on improving corporate governance, it could help enhance corporate value.

According to the Korea Exchange on the 9th, the Korea Value-Up Index closed at 958.41 on the 6th, down 13.10 points (-1.35%) from the previous trading day. Due to the unpredictable domestic political situation, it performed worse than the KOSPI (-0.56%). The market is full of concerns that the momentum driving the corporate value-up program, which the current government has strongly promoted since early this year, has been significantly damaged.

The securities industry pointed out that since the authorities' goal to resolve the Korea discount (undervaluation of the Korean stock market) remains unchanged, the value-up policy is unlikely to change significantly in its overall direction. Yoonjung Kim, a researcher at LS Securities, diagnosed, "It is true that the value-up policy, which requires continuous efforts over a long period to settle, is entering a new phase, but since the authorities have long regarded resolving the Korea discount as a major task, the policy itself is unlikely to change drastically."

Kim explained that the recently highlighted political risks could become an opportunity rather than a crisis for the value-up policy. This is because it is expected to be positive in terms of governance reform. Kim said, "In the event of a regime change in the future, policies may be implemented in the direction prioritized by the opposition party. Regarding financial investment income tax and virtual asset taxation, the Democratic Party has already decided on party positions to repeal or postpone these taxes considering market impacts and submitted the agenda to the National Assembly, so uncertainties related to these issues are low. Now, amendments to the Commercial Act that explicitly improve minority shareholder rights and strengthen board responsibilities related to corporate governance can accelerate."

Furthermore, there is an analysis that within the existing value-up index, companies with excellent corporate governance show better returns. This is why it is expected that if governance improvement policies are actively promoted by the opposition party, the performance of the value-up index could improve. Kyungyeon Lee, a researcher at Daishin Securities, analyzed, "When reinterpreting the value-up index using governance scores, the portfolio composed of the top 20% governance score stocks relatively supported the downside even when the KOSPI fell below 2,500 and widened its losses, whereas the portfolio of the bottom 20% governance score stocks experienced larger declines." He added, "Value-up investments are also differentiated according to governance. As amendments to the Commercial Act are being discussed as a follow-up to the value-up program, governance will become increasingly important."

This content was produced with the assistance of AI translation services.