The Korea Corporate Governance Forum refuted the “KOSPI undervaluation theory” and presented the gov..

The Korea Corporate Governance Forum refuted the “KOSPI undervaluation theory” and presented the government with 10 major capital market reform tasks to achieve “7000P.”

Contrary to some views that the stock price/earnings ratio (PER) remains 12 times lower even though the KOSPI surpassed the 5,000-point level, the semiconductor-oriented economic sensitivity profit cycle, which has driven the index, is approaching its peak.

On the 27th, Lee Nam-woo, chairman of the Korea Corporate Governance Forum, diagnosed, “The KOSPI is currently at a critical crossroads between 7000 and 3500,” in an op-ed titled “The Top 10 Tasks I Want from the Lee Jae Myung Government to Complete Capital Market Reform.”

Rather than simply relying on undervalued expectations, it is time to face the impact of the downturn in the semiconductor cycle on the index.

According to the governance forum, the KOSPI’s 12-month leading PER is around 12 times, which is significantly lower than that of major stock markets such as Taiwan (20 times), Japan (17 times), and the U.S. (22 times).

However, Chairman Lee pointed out that low PER does not necessarily mean undervaluation, given that the Korean stock market has a high proportion of economic sensitivity stocks such as semiconductors.

“The low PER of leading stocks such as Samsung Electronics and SK Hynix may be a sign that stock prices are close to the peak of profits,” he warned. “We cannot rule out a scenario in which the KOSPI plunges to the 3,500-point level if the semiconductor cycle is bent and governance reform is withdrawn.”

Accordingly, the governance forum stressed the need for a strategy to raise the KOSPI’s structural low point through capital market reform to create a stock market constitution that is not shaken by the economic cycle.

The top 10 tasks presented in the comment included △strengthening the exception requirements of the mandatory retirement of treasury stocks and immediate legislation △ Improving the way the Korea Exchange calculates market capitalization △ Re-starting a value-up program with coercion △ Introducing an education program for directors △ Establishing a Taiwanese-style investor protection center △ Practically improving the process of the general shareholders’ meeting △ The process and results of the National Pension Service’s trusteeship committee’s exercise of voting rights △ Introducing a mechanism for the exit of ultra-low-valued listed companies through mergers and acquisitions △ Prohibition of abuse of the comprehensive exchange system.

Chairman Lee said, “There are still many companies that are undervalued compared to fundamentals in KOSPI,” adding, “It is a fair way to resolve structural valuation discounts by improving governance rather than controversy over boosting the index.” However, he drew a line on the artificial stimulus package for the KOSDAQ.

“There are not a few companies whose fundamentals have weakened, and the valuation burden is already large,” he said. “The only solution to save KOSDAQ is to quickly remove insolvent companies even if there is a political burden.”