South Korea’s equity markets are showing remarkable performance, with the benchmark Kospi index experiencing nearly 70% growth this year, nearing its best annual gains in 25 years. President Lee Jae Myung, who took office in June, set an ambitious target for the Kospi to hit 5,000, which seemed unattainable when the index was at approximately 2,700. Currently, the index stands around 4,000, driven largely by significant advances in corporate governance reforms and a global surge in artificial intelligence investments.
Lee’s administration has focused on addressing the “Korea discount,” a term describing the undervaluation of South Korean stocks due to historical corporate practices that favored controlling shareholders at the expense of minority stakeholders. The public’s engagement in the stock market has surged from about 7% of the voting population in 2019 to more than 30% anticipated by 2024, emphasizing the importance of improving household financial security through market growth.
Changes to corporate governance regulations include mandatory cumulative voting for major companies and limitations on voting rights held by individual shareholders in board elections. Reforms aimed at enhancing accountability in corporate practices highlight a proactive government stance in transforming shareholder dynamics. Companies are increasingly adopting these reforms, with notable examples such as SK Square, which has improved its share valuation by taking steps like divesting non-core assets.
Looking forward, additional reforms are on the horizon, including changes to tax laws affecting dividends and inheritance. The journey towards effective corporate governance in South Korea is critical, as successful implementation could serve as a model for governance in other economies.
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