KRX launches Korea Value-up Index featuring 100 best practice firms

South Korea’s securities exchange operator, Korea Exchange, launched a new corporate value-up index on Tuesday, a key plank for the government’s push for better corporate governance and improved shareholder returns.

The Korea Value-up Index is composed of 100 listed “best practice” companies, including big-cap blue-chip companies such as Samsung Electronics Co., SK Hynix Inc., Hyundai Motor Co. and Kia Corp. as well as “new faces” such as BH Co. and Kyung Dong Navien Co. that comply with the government’s corporate value-up program.

The launch of the new index is a follow-up to the government’s corporate value-up initiative announced in February, which aims to boost the domestic equity market’s depressed valuations.

KRX said it selected 67 companies listed on the Kospi main bourse and 33 firms on the junior Kosdaq market, reflecting both quantitative indicators such as dividends and share buybacks and qualitative indicators such as price-to-book ratio (PBR) and return on equity (ROE).

According to the bourse operator, with a base value of 1,000, the Value-up Index is designed to address the “Korea discount” issue and help investors identify companies with high shareholder value indicators such as shareholder return rates and capital efficiency.

“Despite the quantitative growth, the local stock market has been criticized for being undervalued because of the governance and shareholder return issues. This Value-Up Index launch should be a tailwind to the domestic stock market,” Korea Exchange Chief Executive Jeong Eun-bo said at a press conference.

KRX plans to launch financial products, including futures and exchange-traded funds (ETFs), based on the new index, in November.

NEW FACES, DROPOUTS

Major companies included in the index are Samsung, SK Hynix, Hyundai Motor, Kia, Celltrion Inc., Shinhan Financial Group, Mirae Asset Securities Co. and Woori Financial Group.

Twelve new companies currently not included in the KOSPI 200 index made it onto the list. Newcomers include BH Co., Kyung Dong Navien Co., Cuckoo Homesys Co., ISU Petasys Co. and LX Semicon Co.

DB HiTek Co. and Kiwoom Securities Co., which participated in the government-proposed value-up disclosure program, were included through a special inclusion policy.

However, some companies regarded as dividend stocks, such as SK Telecom Co. and KT Corp., were excluded.

Of the top 10 companies in terms of market capitalization, four were excluded from the new index. They are LG Energy Solution Ltd., Samsung Biologics Co., KB Financial Group and POSCO Holdings Inc.

MIXED MARKET REACTION

The market's reaction was mixed, with both anticipation and concern.

"Since companies already known for their high shareholder return rates were those mainly selected, the new index’s impact on the stock market could be limited,” said a domestic asset management company executive.

Another financial firm CEO said: "If the index includes companies with the potential to expand shareholder returns, such as those that have consistently increased dividends over the past five years, there will be more room for stocks and the index to rise."

Analysts said domestic companies’ dubious shareholder return policy, including the relatively low dividend ratio, is often cited as a Korea discount factor and a key reason for Asia’s fourth-largest economy's absence from MSCI's advanced market index.

The Korea discount refers to a tendency for Korean companies to have lower valuations than their global peers due to factors such as low dividend payouts, the dominance of opaque family-run conglomerates known as chaebol and geopolitical risks involving North Korea.

Write to Han-Shin Park, Sung-Mi Shim and Tae-Ung Bae at phs@hankyung.com

In-Soo Nam edited this article.