Goldman Sachs elaborates on the "Han Tech Estimate": It has already driven a 10% rebound in the South Korean stock market, and the next step is to impact the MSCI index.

The South Korean "Enhancing Corporate Value" plan is showing positive effects in the capital market, with the KOSPI index rising by 10% since mid-January. Goldman Sachs analysts stated in a report released earlier this week that the "Enhancing Corporate Value" plan helps alleviate the long-standing issue of the "Korean discount." Many South Korean listed companies have strong cash flow and profit performance over the years, but their stock prices have remained below book value, with valuations often significantly lower than their overseas counterparts, known as the "Korean discount." To enhance the attractiveness of the South Korean stock market, President Yoon Suk-yeol has made eliminating the "Korean discount" one of the government's top priorities. Last month, the "Enhancing Corporate Value" plan was launched, with more details continuously being announced. Prior to this, the Tokyo Stock Exchange pressured listed companies unwilling to change through a "naming and shaming" strategy, driving corporate governance reforms and making good progress. The Nikkei 225 index once broke through the historical milestone of 40,000 points. South Korea's move is seen as emulating Japan, and Goldman Sachs discussed the similarities and differences between this plan and Japanese corporate reform in the report. Additionally, Goldman Sachs analyzed the potential impact of the upcoming South Korean election on the reform process, as well as supportive measures being discussed by the South Korean government such as corporate tax incentives. The latest detail of the plan is that the South Korean Financial Services Commission recently stated its intention to build a system that encourages retail investors and companies to grow wealth and capital through the stock market. Goldman Sachs believes that the South Korean government may introduce more complementary measures in the future, such as tightening delisting rules, introducing more tax incentives, etc., to further drive corporate reform, expecting these measures to potentially lead South Korea to be included in the MSCI Developed Markets Index by 2026. What are the similarities and differences between the South Korean and Japanese special assessment plans? Goldman Sachs pointed out that from a socio-economic perspective, South Korea and Japan face similar structural issues such as slowing economic growth, aging populations, and declining productivity, which need to be addressed by improving capital allocation efficiency. Both countries have relatively low stock market valuations, with listed companies generally controlled by major shareholders, resulting in a small proportion of freely tradable market capitalization. The reform goals are consistent, with both countries aiming to improve corporate governance, increase shareholder returns, stimulate market vitality, and ultimately drive economic development. There are similarities in the means as well, such as encouraging listed companies to increase dividend payouts, buy back stocks, and guide more household wealth towards equity asset investments. The difference lies in the basic structure of the capital markets and investor composition in the two countries. For example, South Korea has a higher proportion of retail investors, meaning policies need to consider the demands of small and medium-sized investors more. Goldman Sachs believes that the upcoming election results in South Korea are unlikely to fundamentally shake the government's determination to advance capital market reforms. Despite potential impacts on specific measures like reducing inheritance tax, both the ruling party and opposition have a broad consensus on improving small shareholders' rights and supporting stock market development. The "Enhancing Corporate Value" plan aims to address structural socio-economic issues by improving capital allocation efficiency between businesses and households. Details so far suggest that this plan not only offers an additional income source for South Korean retail investors but could also drive economic growth. The government may introduce more complementary measures in the future, such as tightening delisting rules and implementing additional tax deduction policies to further promote corporate reform. Goldman Sachs anticipates that the continuity in South Korea's capital market reform policies will likely lead to its inclusion in the MSCI Watchlist in June 2025 and the MSCI Developed Markets Index in June 2026.