Institutes hope Moon will improve corporate governance
By Nam Hyun-woo
Global financial firms and rating agencies expressed their optimism on new President Moon Jae-in, anticipating that his administration will improve the country's corporate governance and clear up uncertainties.
Moody's said Moon's win removed political uncertainty involving the leadership vacuum in the wake of the removal from office of former President Park Geun-hye, expecting consistency in economic and fiscal policies.
"The conclusion of the impeachment process in mid-March was credit positive for the sovereign because it allowed the new president to come in and focus on formulating policies that address Korea's structural economic challenges amid growing domestic and external headwinds to growth," Moody's Senior Credit Officer Steffen Dyck said.
He said the administration will face challenges including structural reform of the labor markets and social security, corporate restructuring, chaebol reform and the country's snowballing household debt.
But the government will have ammunition to tackle them ― "ample fiscal space" to support Asia's fourth largest economy.
"While there might be a shift in focus in some structural reform areas, we expect that fiscal policies will remain anchored and guided by the principles of limiting deficits to 3 percent of gross domestic product (GDP) and keeping government debt below 45 percent of GDP," Dyck said.
According to the Ministry of Strategy and Finance, Korea's central and municipal government debt reached 627 trillion won ($555 billion) last year, accounting for 38.3 percent of the country's GDP.
The average of the Organization for Economic Cooperation and Development members stood at 116.3 percent last year.
Goldman Sachs also expressed its positive opinion on Moon's election.
"We expect corporate governance will likely continue to improve along with broad-based support for the need for better governance as a sound business strategy," Goldman Sachs economist Kwon Goo-hoon said.
However, Kwon said changes in the Commercial Law could be limited to certain areas because all three progressive parties control only 56 percent of the National Assembly. Moon is Korea's first liberal head of state in 10 years.
He said the National Pension Service's (NPS) adoption of a stewardship code would be a more likely step toward improved corporate governance.
The stewardship code, or a set of guidelines for exercising shareholders' voting rights, was introduced in Korea last year aimed at encouraging major institutional investors, including the NPS.
Analysts say that if the NPS joins the stewardship code, more asset management companies will follow and improve the structure of corporate governance as well as create jobs.
Moon said last month that he would direct the NPS to adopt the stewardship code as soon as he takes office.
Franklin Templeton Investments also said that Koreans have voted for changes and Moon's bid to reform conglomerates will revalue Korean companies more positively.
"I think chaebol reform should result in better corporate governance and could lift the prices of many Korean companies, as the so-called Korean discount narrows," Templeton Emerging Markets Group Executive Chairman Mark Mobius said.
The Korea discount refers to the amount by which investors undervalue Korean stocks.
"With Moon's victory, we are hopeful for reform within the chaebol system," Mobius said. "A weakening of the chaebol system could give an opportunity for smaller companies to grow and prosper without being dependent on the chaebol. We look forward to exploring potential opportunities in Korea."
By Nam Hyun-woo
Global financial firms and rating agencies expressed their optimism on new President Moon Jae-in, anticipating that his administration will improve the country's corporate governance and clear up uncertainties.
Moody's said Moon's win removed political uncertainty involving the leadership vacuum in the wake of the removal from office of former President Park Geun-hye, expecting consistency in economic and fiscal policies.
"The conclusion of the impeachment process in mid-March was credit positive for the sovereign because it allowed the new president to come in and focus on formulating policies that address Korea's structural economic challenges amid growing domestic and external headwinds to growth," Moody's Senior Credit Officer Steffen Dyck said.
He said the administration will face challenges including structural reform of the labor markets and social security, corporate restructuring, chaebol reform and the country's snowballing household debt.
But the government will have ammunition to tackle them ― "ample fiscal space" to support Asia's fourth largest economy.
"While there might be a shift in focus in some structural reform areas, we expect that fiscal policies will remain anchored and guided by the principles of limiting deficits to 3 percent of gross domestic product (GDP) and keeping government debt below 45 percent of GDP," Dyck said.
According to the Ministry of Strategy and Finance, Korea's central and municipal government debt reached 627 trillion won ($555 billion) last year, accounting for 38.3 percent of the country's GDP.
The average of the Organization for Economic Cooperation and Development members stood at 116.3 percent last year.
Goldman Sachs also expressed its positive opinion on Moon's election.
"We expect corporate governance will likely continue to improve along with broad-based support for the need for better governance as a sound business strategy," Goldman Sachs economist Kwon Goo-hoon said.
However, Kwon said changes in the Commercial Law could be limited to certain areas because all three progressive parties control only 56 percent of the National Assembly. Moon is Korea's first liberal head of state in 10 years.
He said the National Pension Service's (NPS) adoption of a stewardship code would be a more likely step toward improved corporate governance.
The stewardship code, or a set of guidelines for exercising shareholders' voting rights, was introduced in Korea last year aimed at encouraging major institutional investors, including the NPS.
Analysts say that if the NPS joins the stewardship code, more asset management companies will follow and improve the structure of corporate governance as well as create jobs.
Moon said last month that he would direct the NPS to adopt the stewardship code as soon as he takes office.
Franklin Templeton Investments also said that Koreans have voted for changes and Moon's bid to reform conglomerates will revalue Korean companies more positively.
"I think chaebol reform should result in better corporate governance and could lift the prices of many Korean companies, as the so-called Korean discount narrows," Templeton Emerging Markets Group Executive Chairman Mark Mobius said.
The Korea discount refers to the amount by which investors undervalue Korean stocks.
"With Moon's victory, we are hopeful for reform within the chaebol system," Mobius said. "A weakening of the chaebol system could give an opportunity for smaller companies to grow and prosper without being dependent on the chaebol. We look forward to exploring potential opportunities in Korea."
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