Korea Capital Market Revival Hinges on Economic Fundamentals

The government is embarking on fundamental reforms to revitalize Korea's capital markets. At a roundtable on "Capital Market Stability and Normalization" on the 18th, President Lee Jae-myung emphasized that "capital market revitalization is a truly important factor for Korea's economic and industrial development." He expressed hope to "quickly modernize the market to increase citizens' asset values and create a virtuous cycle of increased consumption."

President Lee reaffirmed his commitment to addressing corporate governance issues and market unfairness, including stock price manipulation, which have been cited as causes of the Korea Discount. The government plans to encourage improvements at companies with low price-to-book ratios and prohibit dual listings.

The KOSDAQ market, long called a "perpetual second-tier league," will be reorganized into two tiers: "mature innovative companies" and "growing companies." The government also decided to expand customized technology-based special listing tracks to allow innovative companies faster market entry.

Markets responded positively to the government's reform commitment. The KOSPI closed at 5,925.03, up 5.04%, led by sharp gains in semiconductor stocks including Samsung Electronics and SK hynix. The KOSDAQ index also rose 2.41% to 1,164.38.

At his New Year press conference, President Lee said, "Rather than artificially boosting stock prices, normalization is what matters." He meant that resolving the Korea Discount through market normalization would naturally lift stock prices. However, truly eliminating the Korea Discount requires more than corporate governance improvements and addressing market unfairness—it must be accompanied by strengthening macroeconomic fundamentals and structural earnings growth at companies.

More important than stock market institutional reforms is corporate profitability. Stock prices reflect the fundamental intrinsic value of individual companies in the market. Samsung Electronics, which held its shareholders' meeting that day, was able to approve aggressive shareholder return policies—including a special dividend of 1.3 trillion won and share buyback cancellations worth 16 trillion won in the first half of this year—thanks to solid performance in global markets. Companies must generate profits to share with shareholders.

The government must substantially support productive financing to enable companies to invest in future growth engines and boldly eliminate outdated regulations. Only by expanding the playing field where companies can compete will Korea's capital market shed its chronic discount and leap forward as a premium market.