Seoul: Korea's stock market has seen a remarkable surge since the inauguration of President Lee Jae-myung. On Wednesday, the Kospi index exceeded the 2,900 mark for the first time in over three years, fueled by renewed investor confidence following the resolution of political uncertainties related to martial law, presidential impeachment, and a fiercely contested election.
According to Yonhap News Agency, market optimism surrounding the Lee administration's aspirations to elevate the Kospi to 5,000 has spurred what many are calling a "honeymoon rally." There is growing anticipation that proposed reforms, including modifications to the Commercial Act, could address the longstanding "Korea discount" in the capital market.
During a visit to the Korea Exchange on June 11, President Lee engaged with market participants and emphasized the need to quickly identify and strictly penalize unfair trading practices through a one-strike-out system. He also committed to reclaiming unjust profits and pursuing tax and regulatory changes to encourage dividend payouts, aligning with broader efforts to advance the capital market.
President Lee's comments on spinoffs and mergers were particularly noteworthy. He highlighted the potential volatility in stock values during corporate restructuring, reinforcing his push to revise the Commercial Act. While the ruling party has temporarily shelved the proposed legislation, Lee's campaign pledge to amend the act is expected to proceed. The Democratic Party's new proposal is more aggressive than a similar bill previously vetoed, expanding directors' fiduciary duties to shareholders and including mandatory cumulative voting.
The new bill requires companies to elect more than one audit committee member separately, with major shareholders' voting rights capped at 3 percent each. Critics warn this could expose Korean companies to foreign activist funds and destabilize board governance. If shareholders' rights are expanded, companies should be provided with defensive tools like dual-class shares and poison pill provisions, commonly used in the U.S. and Japan, to maintain balance.
While the objective of reducing founding families' dominance over corporate boards and safeguarding minority shareholders is commendable, it is crucial to avoid creating investment-deterring uncertainty. Korea's low dividend culture needs to evolve, but not at the expense of companies' investment capabilities.
As President Lee prepares to meet with business leaders later this week, he should heed the concerns of the private sector, acknowledging that corporate investment is vital for economic growth.