By Lee Yeon-woo
Investors are amassing funds to jump into the local stock market ahead of the government’s unveiling of the much-anticipated Corporate Value-up program, which is designed to tackle the decades-long Korea discount, according to the Korea Financial Investment Association, Sunday.
The total funds entrusted by investors to brokerage firm accounts for stock trading reached 53.63 trillion won ($40.2 billion) as of Thursday. This marks an increase of approximately 3 trillion won compared to a month ago, according to the association.
In addition, investors borrowed 18.38 trillion won from securities firms for stock investments as of Thursday, indicating a rise from 17.8 trillion won at the end of January. Notably, the amount surged to 9.85 trillion won in the benchmark KOSPI market, marking its highest level in over four months since last October.
Such movements indicate heightened anticipation among investors as the government is set to announce the program details on Monday, after a month of consideration.
In January, the government declared the adoption of this policy, aimed at enhancing the value of domestic corporations to address their undervaluation in stock markets, often referred to as the Korea discount.
If the content aligns with market expectations, there is a chance that the recent market rally, focused on stocks with low price-to-book ratios (PBR), will continue to expand. A PBR below 1 suggests that the firm’s stock price is undervalued.
There are 534 stocks with a PBR of less than 1 in the KOSPI and 575 in the secondary Kosdaq market, as of Friday.
Already, foreign and institutional investors have swiftly increased their holdings of “undervalued” stocks, such as Hyundai Motor, with each purchasing 583.6 billion won and 538.8 billion won worth in February.
Additionally, on Friday, the final trading day preceding the government’s announcement, financial stocks reached a consecutive 52-week high on the KOSPI.
“As the program benchmarks Japan’s highly specific policies for enhancing corporate value, the possibility of it being unrealistic is greatly reduced,” SK Securities analyst Kang Jae-hyun said. “It is anticipated that this policy will serve as a catalyst for more companies to take action for value enhancement in the medium to long term.”
However, some market observers caution that a correction phase may follow the announcement, given the sharp rise beforehand.
“Considering the substantial surge already seen in related stocks, unless the content of the program exceeds investors’ expectations to an astonishing degree, it is likely that the low PBR stocks will undergo a period of profit-taking due to overheating in the short term,” Daishin Securities analyst Lee Kyoung-min said.
Lee predicts that the KOSPI will undergo a transition from low PBR stocks to export-oriented and growth stocks after February, suggesting its target level at 2,750.
