Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Financial regulator aims to benchmark Japan's stock market
An electronic signboard at a Hana Bank dealing room in Seoul show the benchmark KOSPI fell 8.92 points or 0.36 percent to 2,469.69 points, Wednesday. Yonhap
By Yi Whan-woo
Korea is considering benchmarking the Japanese stock market to address the challenges faced by the Korea Composite Stock Price Index (KOSPI), which has displayed the sharpest decline among major bourses in the G20 economies this year, according to multiple financial authorities and sources, Wednesday.
The Financial Services Commission (FSC), Korea's financial regulator, is reportedly researching government-led stimulus measures in Japan. The focus is on understanding how Japan's benchmark Nikkei 225 has surged over 9 percent this year, reclaiming the top position in Asian markets. The sources indicate that this research is part of the broader consideration of benchmarking Japan's stock market to come up with potential strategies for the KOSPI.
The KOSPI declined more than an 8 percent so far this year.
Under the circumstances, the Financial Services Commission (FSC) is collaborating with financial think tanks in its research, which specifically focuses on Tokyo's policy of urging listed firms to enhance their price-to-book ratio (PBR) to above 1, often through prompt and assertive measures.
The research was initiated by FSC Chairman Kim Joo-hyun, who, according to sources, has been impressed by the improvement of Tokyo’s stock index.
PBR serves as a metric to evaluate a company's market price relative to its book value. A ratio below 1 indicates that the stock price of a firm is less than the value derived from selling all of its assets at book value. Consequently, a PBR below 1 suggests that the investment may not be lucrative as the stock is valued lower than the sum of its asset values on the books.
The PBR of companies listed on the KOSPI and smaller equity markets combined is 0.89 on average.
The Tokyo Stock Exchange requested the listed firms with a PBR of below 1 to formulate reform plans aimed at enhancing their capital efficiency. Additionally, the firms must provide specific details on the measures they intend to implement to execute this plan effectively.
The request was issued in March 2023, and several underperforming companies were warned that they risk delisting if they fail to comply accordingly with the directive.
About 40 percent of the companies listed on the Tokyo Stock Exchange's prime section have responded to the request so far. Notable businesses, including Sony Group and Hitachi, are among the companies that have complied with the directive.
Approximately 94 percent of Japanese banks, notorious for their low PBR, actively participated in the government-driven campaign aimed at bolstering the stock market.
“Stock investors in Tokyo view the reform initiatives of the listed firms positively, and Japanese stocks in general are anticipated to remain bullish for the time being,” KB Asset Management noted in a report.
As a part of efforts to invigorate Korean stocks, the FSC launched the "Corporate Value-up Program" aimed at supporting companies enhance their market values.
On Wednesday, Kim, jointly with Financial Supervisory Service Governor Lee Bok-hyun, hosted a meeting with top representatives of 10 securities firms to help expand the Corporate Value-up Program across the stock market.
The FSC chief underscored that the program will be crucial to restore the trust of investors while providing opportunities for the businesses to understand why their shares are undervalued.