▲ Dealing room at Hana Bank main branch in Jung-gu, Seoul on the 29th ⓒYonhap News
The Korean stock market is expected to record the lowest rate of return among major stock markets around the world. Market experts analyze that various chronic diseases that are suffocating the domestic stock market are causing the so-called ‘Korean discount’ (undervaluation of the Korean stock market).
In particular, it is explained that the stock market can be revived only by eliminating the uncertainty about whether or not the financial investment income tax (gold investment tax) will be implemented, which played a major role in expanding the confusion in the Korean stock market.
According to the Korea Exchange on the 30th, as of 10 am on this day, the KOSPI index is trading at 2605.20, down 12.60 points (0.48%) from the previous trading day. At the same time, the KOSDAQ index is trading at 743.23, down 0.95 points (0.13%) from the previous day.
The domestic stock market, which showed an upward trend early this year, has been struggling to show strength in the second half of the year. The KOSPI index fell 3.5% this year to this day, and the KOSDAQ fell about 15.4%.
The problem is that compared to the stock markets of major countries around the world, the domestic stock market’s report card is even more dismal. This is because Korea is almost the only index among major stock markets around the world that has recorded negative returns.
According to investment analysis agency Investing.com, looking at the stock market trends of 22 major countries, including Hong Kong and Taiwan, as well as the top 20 countries in terms of gross domestic product (GDP) in the world, Korea’s KOSDAQ index ranked last in terms of return among major global stock markets. KOSPI was also ranked 4th in global index decline rate.
In fact, among the major stock indices in 22 countries, only four recorded negative returns, including Korea’s KOSDAQ and KOSPI, Mexico’s S&P/BMV IPC, and Russia’s RTSI. Among these, KOSDAQ recorded the biggest decline.
Stock markets around the world rallied, led by big American technology stocks, thanks to the artificial intelligence (AI) craze in the first half of this year. In the second half of the year, the U.S. Federal Reserve’s big cut (a 0.5% point cut in the base interest rate) and China’s large-scale economic stimulus package ignited the fire.
Accordingly, major stock markets such as the United States, Taiwan, Hong Kong, and Japan recorded increases of more than 20%. India and Brazil, which are considered relatively developing countries, also posted higher returns than Korea, and Israel, which is currently at war, also rose by more than 8%.
Experts say that one of the biggest reasons for Korea’s discount is that companies implement governance policies that only consider the interests of major shareholders. In particular, the lack of protection for general shareholders when listing spin-off subsidiaries is considered a chronic problem for Korean companies.
Accordingly, financial authorities are strengthening the screening for listing of spin-off subsidiaries. Listings are restricted if efforts to protect shareholders, such as explanations and communication to shareholders of the parent company, are insufficient, but the behavior of some companies that pour cold water on the capital market appears to be continuing.
Some point out that institutional investors such as pension funds and asset management companies do not play an active role. The authorities are emphasizing this stewardship code (exercising voting rights) and encouraging institutional investors to inspect and participate in the value-up activities of investment target companies.
An official from the securities industry said, “The Stewardship Code guidelines themselves are not legally binding, so revision of the Commercial Act must take precedence.” He added, “It appears that political circles, not financial authorities, should actively engage in public debate to improve related measures.”
Above all, some point out that uncertainty about whether the gold investment tax will be implemented is the main cause of Korea’s discount. In particular, it is explained that as the opposition Democratic Party of Korea showed a loss of direction and confusion over the gold investment tax, investors also appeared to leave the domestic stock market.
Accordingly, the government and the ruling party are prioritizing the abolition of the gold investment tax and are making a drive. They selected the Income Tax Act, which abolishes the gold investment tax, as a major task for people’s livelihood, and announced a plan to speed up legislation after consultation with the opposition party.
In fact, Kim Sang-hoon, chairman of the People Power Party’s policy committee, said the previous day, “Discussions are actively continuing on the need for the gold investment tax to give a positive signal to the domestic stock market,” and “the ruling and opposition parties will negotiate to achieve results in abolishing the gold investment tax.”
The opposition party, which had advocated the implementation of a gold investment tax, is now moving to a situation where it cannot oppose the abolition of the gold investment tax.
The Democratic Party’s position is that it will first make a decision through leadership discussions after the National Assembly audit is over. Although there are many people in the leadership who are advocating for the postponement or abolition of the gold investment tax, it is gaining weight, but as the argument for implementation continues to persist in some circles within the party, it is expected that there will be considerable difficulties until a final conclusion is reached.
