Despite high anticipation, investors are avoiding stocks included in the Corporate Value-up Index, as the market seems to have already priced in the index’s launch, and shareholder returns have not met expectations.
Since the official calculation of the index began on Sept. 30, foreign investors have net sold 1.18 trillion won ($874 million) in shares across the 100 stocks that make up the index over six trading days, up until 3 p.m. on Thursday. During the same period, institutional investors also net sold 996.3 billion won worth of stocks.
Their selling spree is heavily concentrated on top market-cap stocks in the Value-up Index, including Samsung Electronics and SK Hynix.
Small and mid-cap companies have also experienced sluggish performance. Eleven stocks that are included only in the Value-up Index, and not in the KOSPI 200 or Kosdaq 150 indices, have not yet demonstrated the expected increases in stock prices or improved demand.
“The market has already partly priced in the launch of the Value-up Index in Korea … reflecting investors’ optimism that these stocks are likely to be included in the upcoming index,” Douglas Kim, an analyst at SmartKarma, a Singapore-based investment research firm, said.
Additionally, shareholder returns — central to the initiative — are not meeting investor expectations. Despite enhanced government policies, the number of companies that 한국을 paid dividends at least once in the first half of this year increased by only six compared to the previous year, according to the corporate analysis firm Leaders Index.
However, companies may start to actively demonstrate a stronger commitment to shareholder returns to solidify their position in the index, KB Securities analyst Kim Min-gyu said.
The Korea Exchange indicated its intention to make changes to the stocks included in the index if necessary, during an emergency press meeting, Sept. 26, in response to mounting criticism over the selection criteria.
Reflecting this anticipation, the majority of stocks leading the net buying list are those not currently included in the index but are expected to be added in the future.
A strong contender, LG Energy Solution, ranked first among institutional investors in net buying. Foreign investors ranked KB Financial Group as their third most purchased stock, as it was the first financial firm in Korea to participate in the government scheme.
Some in the brokerage industry argue that the scheme should be monitored with a mid to long-term perspective, as it is still in its early stages. There are also expectations of capital inflows beginning next month, as exchange-traded funds tracking the index are set to be launched in earnest.
“The Corporate Value-up Program should extend beyond increasing stock prices through shareholder returns, evolving into broader initiatives such as private sector-led restructuring and optimizing idle assets,” Shinhan Securities analyst No Dong-kil said. “The announcement of the index marks the beginning of the long-term policy program.”