The South Korean government announced that it will, in principle, prohibit listed companies from spinning off their subsidiaries for separate listings. This governance reform measure, which has long been seen as a structural root of the &#34;Korean discount,&#34; quickly triggered a strong reaction in the capital market, with the benchmark stock index rising for three consecutive days, and the single-day increase once soaring over 5%.
Lee Eog-weon, chairman of the Financial Services Commission of South Korea, officially announced the above measures at an investor conference in Seoul on Wednesday, stating that the government will &#34;establish comprehensive standards to ensure that the simultaneous listing of parent and subsidiary companies does not harm the rights and interests of ordinary shareholders,&#34; and will &#34;principally prohibit duplicate listings through strict reviews.&#34;
After the announcement, the Korea Composite Stock Price Index (Kospi) saw an intraday increase of over 5%; Kospi 200 futures also surged over 5%, triggering the circuit breaker mechanism for programmed trading.
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The Samsung Electronics shareholders' meeting on the same day also fueled market sentiment—this chip giant provided an optimistic outlook on demand for artificial intelligence, with both Samsung Electronics and SK Hynix rising over 7%. The stock prices of holding companies such as CJ Group and SK Corporation also climbed significantly, having already strengthened earlier this week due to local media exposure of related policy news.
The introduction of this policy is the latest step taken by South Korean President Lee Jae-myung to promote the modernization of capital market governance and continuously compress the &#34;Korean discount&#34; system. &#34;Dual listings&#34; have long been viewed as a structural ailment that suppresses the valuation of holding companies and leads to chronic undervaluation of the South Korean stock market. The ban boosts investor confidence, but the market is also assessing whether the reform can truly translate into tangible improvements in shareholder returns.
<h2>Core of the Policy: Strict Review, Principally Prohibit Duplicate Listings</h2>
The so-called &#34;dual listing&#34; refers to a situation where a listed parent company spins off its quality subsidiaries and lists them separately. This practice is believed to systematically dilute the stock price of holding companies and is seen as a structural root of the long-term discount in the South Korean stock market.
Lee Eog-weon stated that duplicate listings will be principally prohibited through strict reviews to protect the rights of ordinary shareholders. According to Bloomberg, the new regulations are expected to affect the IPO plans of major conglomerates such as SK, HD Hyundai, and Hanwha Group's affiliated companies.
Jung In-yun, CEO of Fibonacci Asset Management, pointed out that conglomerates have long repeatedly spun off their best-performing business units for separate listings, &#34;resulting in equity dilution and hindering the value enhancement of the surviving companies.&#34; He believes that with the tightening of regulations on the listing of affiliated companies, the number of quality business units that will be independently spun off and listed in the future will significantly decrease, and the usual path of large conglomerates relying on IPO financing from affiliated companies is likely to be obstructed.
The IPO of LG Energy in 2022 is often cited as a typical case. LG Chem spun off this high-growth battery business for listing at the peak of the electric vehicle boom, and subsequently, the parent company's stock price fell about 9% within a month and has remained in a long-term slump.
<h2>Korean Discount: Valuation Pit Remains Deep</h2>
Despite the Kospi having risen over 121% since early 2025, with a market capitalization increase of about $1.7 trillion, the issue of the &#34;Korean discount&#34; remains prominent
The current price-to-book ratio of the Kospi is approximately 1.7 times. Although it has significantly rebounded from its historical low of less than 1 time, it is still lower than Japan's Topix index at 1.9 times and China's CSI 300 at 1.8 times.
The comparison in terms of earnings is even more pronounced. According to data compiled by Bloomberg, the earnings of Kospi constituent stocks are expected to more than double in the next 12 months, far exceeding the 12% of Topix constituent stocks, indicating that the current valuation remains attractive relative to fundamentals.
The leader of the ruling Democratic Party, Jeong Cheong-rae, stated last week that Korea's price-to-book ratio is far below the average level of about 3 times in developed economies, calling for a shift from &#34;Korean discount&#34; to &#34;Korean premium.&#34; JP Morgan has set a target for the Kospi at 7,500 points, which implies an upside of over 41% from the current level, but analysts indicate that this is contingent on further substantial progress in corporate governance reforms.
<h2>Reform Implementation: There is Still a Gap Between Policy Declaration and Shareholder Returns</h2>
Although the &#34;dual listing&#34; ban has boosted market sentiment, several investors have reminded that whether the policy can truly translate into tangible improvements in corporate fundamentals remains to be seen.
Indrani De, the global investment research director at FTSE Russell, pointed out that chaebols are a dominant feature of Korean enterprises, leading to complex cross-shareholding structures, insufficient protection for minority shareholders, and low dividend yields. She stated that investors want to see &#34;policy changes effectively translate into improvements in return on equity (ROE),&#34; rather than just remaining at the level of policy declaration.
Jonathan Pines, a portfolio manager at Federated Hermes, believes that revising inheritance tax laws is crucial.
Under the current system, controlling shareholders have an inherent motivation to tolerate or even actively suppress stock prices to address wealth inheritance.
He stated, &#34;If a bill that requires inheritance tax to be levied based on net assets rather than market value is passed, it will fundamentally eliminate the motivation to maintain low stock prices.&#34; Once the government's related reform measures are ultimately implemented, &#34;Korean discount&#34; may be completely eliminated.
Christian Heck, a portfolio manager at First Eagle Investments, believes that although Korea is advancing reforms similar to those in Japan, its valuation still has &#34;normalization space&#34; to align more closely with Japan, indicating that the benefits of reform have not yet been fully realized

South Korea announces a principle ban on the "dual listing" of parent companies splitting off subsidiaries, directly addressing the structural ailment of "Korean discount." The so-called "dual listing" refers to the practice where an already listed parent company splits off its high-quality subsidiaries and lists them separately. This practice is believed to systematically dilute the stock prices of holding companies and is seen as a structural root cause of the long-term discount in the South Korean stock market

- The South Korean government announced a principle-based ban on listed companies splitting their subsidiaries for separate listings to address the "Korean discount" issue, which led to a rally in the capital markets with a significant rise in the Kospi index.  
- Lee Eog-weon, chairman of the Financial Services Commission, emphasized the need to protect common shareholders and prevent systematic dilution of holdings through this reform.  
- Although the ban has boosted market sentiment, investors remain cautious about whether these policy changes will translate into tangible improvements in corporate fundamentals and shareholder returns.

South Korea takes action to regulate "dual listings," stock index surges 5% achieving three consecutive increases