[여명] K stock market worse than local real estate

Lee Sang-hoon, Head of Investment and Securities Department

Individuals who preferred domestic investment begin to leave the U.S.

Pension companies also need to sell their stock holdings to achieve reform that is just pretending.

They call for an increase in value, but the stock market conditions are at their worst.

Failure to provide shareholder returns, tax reform, and governance reform

Like local real estate, it is inevitable that investors will turn away.

The overall conditions of the K stock market are too deteriorating to dismiss the value industry as a stock market stimulus package that comes out as a courtesy every administration. If things continue like this, can we say that our capital market is definitely better than local real estate? Yonhap News

The first time President Yoon Seok-yeol brought up the topic of value up was at the public livelihood debate in mid-January this year. As you know, Korea discount is not a new thing. In the ping-pong game between reality and ideals, reality is usually refracted. The fact that the Korean economy is vulnerable to external factors and that the Korean stock market, which reflects this, does not live up to its fundamentals, may be an inherent bondage, closer to a law of nature.

Perhaps that is why, recalling the time of the announcement, the evaluation of the value up was also biased towards considering the gains and losses of the political circles rather than the essence of the problem. For example, there were a lot of cynicism-filled and misleading stories, such as ‘a divine move that will grab the votes in the general election’ and ‘the pro-Japanese government’s copying of Japanese policies.’ Now, the election filled with matadors and ballots is over, and this year is coming to an end. This is a good time to calmly look at the overall conditions of our stock market.

First of all, there is a lot of ‘home bias’ (investment biased towards one’s own country), so ants that were considered absolute allies in terms of supply and demand are turning their backs on the director one by one. This year, individuals sold stocks worth 8.0189 trillion won (as of September) on KOSPI. Even in the early 2020s, the net purchase size was around 50 trillion won, but now that El Dorado called the United States has been discovered, there is no longer any attachment to the national affairs.

Ant’s love of America is not based on a vague sense. Aside from the woefully inadequate return to shareholders of domestic companies, Korea’s potential growth rate has lagged behind that of the United States, a mature economy, for two consecutive years (2023 and 2024), and the next-generation industry that will succeed semiconductors and batteries is not visible. In addition, even in artificial intelligence (AI), which is shaking our lives to its core, technological leadership is held by the United States, where big tech companies are located, so there is no need to be concerned about the director.

The agency’s perception of reality is more severe. The National Pension Service’s target for domestic stock investment at the end of this year is 15.4%, but actual investment is only 13.8% (as of the second quarter). It will also fall further to 13% in 2029.

The frustrating part is that, due to only a pretense of pension reform, from 2030, five years from now (data from the 5th public hearing on financial calculations), if you want to pay a pension, you will have to sell your stocks because it will not be covered by insurance premiums. To make matters worse, the economically active population (number of employed people) who will invest money in the Korean stock market will also decline after peaking in 2027. In short, there is a lot of money to be used for pension payments, so stocks must be sold, and the seed money to buy stocks is destined to dwindle.

The stock market is essentially a zero-sum game, so even if individuals and institutions leave, foreigners can buy. However, it is impossible for foreigners to be unaware of the Achilles heel of the K stock market. Stock markets that are ignored in their own countries are bound to become prey for foreigners. This means that it will become a stock market with no substance and more vulnerable to money play. The more you think about it, the more difficult it is to compete in the Korean stock market through long-term investment.
For this reason, when I look at the Korean stock market, I even think that it is inferior to local real estate. Now, even people living in rural areas make their homes in Seoul. Even if you pay rent and live in a jeonse, you make that choice. This is because they believe that the only thing left to do is for house prices to go down once they have set up a residence in the area where they live. In real estate, it is possible to restrict Seoul with double and triple regulations to save the local region, but it would be unthinkable to penalize overseas stock markets to attract investors to the K stock market. The current state of the Korean stock market requires a greater sense of crisis than local real estate.

In the end, there is hope only when you change yourself. From our capital market perspective, the value industry is close to the last scream before catastrophe. The condition of our stock market is so deep that it cannot be seen as another version of the stock market stimulus package that is introduced as a courtesy every time a government takes power. In order to become a market chosen by investors, we must properly discover and publicize companies with the will and ability to enter the value industry. The value up index also needs to further distinguish between the good and the bad. A company can only have vitality if it wants to be included in the index.

In particular, regulations and unreasonable trading practices, such as major shareholders who take lightly the interests of minority shareholders and various tax systems that produce such large shareholders, must be overhauled at this time. Investors’ discernment has become too high to just ignore the unique governance structure of Korean companies.