Korea Exchange to launch new stock index to counter low equity valuations (updated)

Meritz Financial

24/09/2024 08:34

(Adds analyst comment in paragraph 9, more details in paragraph
10-11)
    By Cynthia Kim and Youn Ah Moon
       SEOUL, Sept 24 (Reuters) - South Korea's main securities
exchange operator said on Tuesday it is launching a new stock
index, called the Korea Value-up Index, aimed at luring inflows
as part of a broader push to boost the local equity market's
depressed valuations.
    Korea Exchange said the index will be made up of 100
profitable local companies deemed to have strong shareholder
return policies and a track record of complying with government
initiatives to narrow a "Korea discount" on stock prices. 
    The discount refers to a tendency for South Korean companies
to have lower valuations than global peers due to factors such
as low dividend payouts, and the dominance of opaque
conglomerates known as chaebols.
     The new index will be launched on Sept. 30 for asset
managers and mutual funds to use as a benchmark to create
exchange traded funds, which retail investors can trade
real-time like stocks on an exchange, Korea Exchange said. 
    "We expect to contribute to the re-evaluation of the Korean
capital market as it will be used to develop various index-based
products and revitalise investment trends," it said in a
statement. 
     The government of President Yoon Suk Yeol has been working
to end a perennial market discount and boost shareholder returns
with steps such as setting long-term targets for return on
equity and increasing communications with shareholders. 
    But the reforms have received a lukewarm response from
investors so far, since they rely on the voluntary efforts of
companies.
    The benchmark Kospi  .KS11  has fallen 1.5% this year, while
the S&P 500  .SPX  and Nikkei  .N225  have jumped 20% and 14%,
respectively. 
    "This index is the first concrete policy step that could
actually create inflows into South Korean markets among other
steps taken," said Lee Jung-bin, analyst at Shinhan Securities,
who noted pension and mutual funds are expected to allocate more
capital into the market once ETFs related to the index arrive. 
        Samsung Electronics  0005930.KS , SK Hynix  000660.KS ,
Hyundai Motor  005380.KS , Kia Corp.  000270.KS , HMM Co
 011200.KS , Korean Air Lines  003490.KS  are some of the
companies included in the new index. 
  
        In the financial sector, Shinhan Financial Group
 055550.KS , Woori Financial Group  316140.KS , Meritz Financial
Group  138040.KS , Mirae Asset Securities  006800.KS  and Kiwoom
Securities  039490.KS  were also on the list. 
  
    To be eligible for index consideration, the market
capitalisation of a security needs to be among the top 400
locally listed companies. 
    The average return-on-equity (ROE) ratio needs to have
remained among the top 100 of its peer group for the past two
years, and the company needs to have paid out dividends or
repurchased shares for at least two consecutive years. 
    Korea Value-up index futures will be separately launched on
Nov. 4, the Korea Exchange said.

 (Reporting by Cynthia Kim
Editing by Ed Davies)
 ((Cynthia.Kim@thomsonreuters.com; 822 3704 5655; Reuters
Messaging: cynthia.kim.thomsonreuters.com@reuters.net))