Martial law threatens success of Corporate Value-up Program

The real-time index of the benchmark KOSPI is displayed on an electronic board in a dealing room of Hana Bank in Seoul, Thursday. Yonhap

Poor performance of Value-up ETFs undermines efforts to address Korea discount

The Corporate Value-up Program implemented by the government faces concerns that it will lose momentum in the stock market in the aftermath of the martial law declaration, which rocked the nation this week.

The program is aimed at boosting undervalued stocks, with a special index featuring 100 companies, a special basket of 12 exchange-traded funds (ETFs), a 500 billion won worth fund and other measures as Seoul's markets are among the worst performers in the world.

Under the circumstances, the benchmark KOSPI retreated again for two consecutive days, Thursday, after snapping a previous two-day losing streak, Tuesday before President Yoon Suk Yeol declared martial law that same day.

Although the National Assembly blocked the emergency decree early on Wednesday, analysts suggest that the ongoing political unrest is impacting investor sentiment, causing ripple effects across the market and dampening the intended impact of the Corporate Value-up Program.

“It’s a pity that the government may end up empty-handed concerning its goal of revitalizing the market because of the martial law,” said Jung Eui-jung, head of the Korean Stockholders' Alliance. “The incident only lasted for a few hours, but it may take months or longer to ensure investors that the political situation here is stabilized."

Jung pointed out that the opposition bloc is moving to impeach Yoon for "insurrectionary behavior," while the unpopular president still has about two and a half years remaining in his term.

An analyst at a brokerage firm, who requested to remain anonymous, believes that banking groups are being hit harder by the martial law declaration, as foreign investors, who had previously invested heavily in these groups' shares, are now selling them off.

The country’s largest banking group, KB Financial dropped nearly 10 percent on the benchmark KOSPI, Thursday, while the No. 2-ranked Shinahn Financial lost more than 5 percent on the same day.

Two smaller peers on the KOSPI — Hana Financial and Woori Financial — retreated more than 3 percent, respectively.

The analyst noted that the decline in banking groups was particularly significant, as they had been seen as the most likely beneficiaries of the Corporate Value-up Program.

With regard to ETFs, all 12 Corporate Value-up ETFs were found to be making a loss just a month after their market debut on Nov. 4.

For instance, KoAct Korea Value-up Active EFT and TRUSTON Korea Value-up Active ETF shed more than 2 percent as of Wednesday.

TIMEFOLIO Korea Value-up Active EFT and TIGER Korea Value-up ETF were among those that retreated more than 1 percent over the cited period.

“It appears investors are little convinced about the financial policies of the current government, especially considering the president faces the risk of impeachment,” the analyst said.