President Yoon Suk-yeol reiterated the importance of adopting a global standard to address the “Korea Discount,” which indicates the undervaluation of the domestic stock market, during his televised speech on Feb. 7. This has sparked increased interest in low price-to-book ratio (PBR) stocks among investors, both within and outside the securities industry. Foreign investors, in particular, have been highly responsive to the announcement of policies aimed at resolving the Korea Discount. Since Jan. 19, they have consistently participated in “Buy Korea,” which refers to the purchase of domestic stocks, for 14 consecutive trading days, with only one exception.
According to the Korea Exchange on Feb. 8, foreign investors have consistently been engaged in net buying of KOSPI stocks, except for Jan. 30, during the period from Jan. 19 to the previous day. During this period alone, the net purchase amount reached a significant 4.94 trillion won (US$3.71 billion). Since the announcement of the government’s “Corporate Value Up Program” plan on Jan. 24 aimed at expanding shareholder returns for low price book value (PBR) stocks, there has been a focus on purchasing such stocks. PBR is calculated by dividing a company’s market capitalization by its asset value. If the PBR is lower than 1, it indicates that the stock is undervalued.
Foreign investors are particularly focusing on purchasing stocks of Hyundai Motor, Samsung Electronics, Kia Motors, Samsung Biologics, KB Financial Group, Hana Financial Group, Samsung C&T, and SK Square, which are considered representative low-PBR stocks. These companies are also among the top market capitalization stocks on the KOSPI. Institutional investors are also engaging in low PBR investments, with Hyundai Motor, LG Chem, Shinhan Financial Group, Samsung C&T, LG, SK, Samsung Life Insurance, and Hana Financial Group being the top choices, in that order.
The PBR of the domestic stock market is lower compared to major countries. The overall PBR of the domestic market stands at 1.05 times, with the KOSPI reaching only 0.95 times. In contrast, the PBR in the United States is as high as 4.55 times, while the United Kingdom, Japan, and Taiwan are evaluated at 1.71 times, 1.42 times, and 2.41 times, respectively, higher than the South Korean stock market.
In the market, the low level of PBR is raising expectations for further stock price increases. Park Woo-yeol, a researcher at Shinhan Investment, explained, “In Japan, the effects of companies with a PBR of 1 under the Corporate Value Up Program have lasted for six months.”