It was found that the shareholder return rate through dividends and share buybacks in the Korean stock market is lower than that of the Chinese market as well as developed countries such as the US and Europe. It is pointed out that the passive shareholder return stance is the cause of the ‘Korea discount (discount)’.
According to FactSet and KB Securities on the 9th, Korea’s average shareholder return rate over the past 10 years has been only 29%. The shareholder return ratio is the ratio of the sum of dividends and share buybacks divided by net income. The highest market was the United States, which reached 92%. It was followed by developed countries excluding the United States (68%), emerging countries (37%), and China (32%).
It turns out that the market where listed stocks make the most money is also the US. As of May this year, the standard and Poor’s ( S&P ) 500 index, the representative index of the United States, had a return on equity ( ROE ) of 20%. Compared to January 2005, it increased by 4.4 percentage points.
It is an analysis that although companies make money well, a virtuous cycle structure that supports profits was possible due to strong share buybacks. Usually, when a company buys back its own shares, the number of shares in circulation decreases, which in turn increases earnings per share ( EPS ). Share repurchases are also an effective means of boosting stock prices from the perspective of shareholders as they do not incur taxes like dividends.
Last Year’s S&P 500The total amount of treasury stock purchases of companies in the index reached $943 billion (approximately 1,220 trillion won). Share repurchases account for 57% of S&P 500 net profit, more than half. The proportion of stock buybacks in the S&P 500 for the top 20 stocks by market capitalization jumped from 20% a decade ago to 34% last year메이저놀이터. Korea’s share purchases last year amounted to only about 4 trillion won. For example, in the case of Meta Platform (Facebook), a
US social network service ( SNS ) company, its stock price soared when it decided to buy back its own stock for $40 billion (about 52 trillion won) earlier this year. The size of the treasury stock purchase is about 10% of the meta market capitalization at the time.
The US stock market also has the highest compounding effect on cumulative returns from quarterly dividends. The simple return of the US S&P 500 over the past 10 years is 169%. When dividend reinvestment income is included, the figure rises to 224%. This is the reason why there are many long-term investors in the US market.
Kim Se-hwan , a researcher at KB Securities, said, “A good investment is one that brings a high profit compared to the invested capital . ” On the other hand, Korea’s KOSPI index’s ROE
as of May this year was only 7.2%. This is because the amount of treasury stock buybacks is smaller than in markets such as the US and other developed countries. It even showed a sharp decrease of about 10 percentage points from the figure of 17.6% in January 2005. The reality is that the ROE (11.6%) of large-cap stocks in the Chinese stock market is not even reached. Over the past 10 years, the stock return on the Korean KOSPI index has been 25%. Assuming the dividend is reinvested, it would increase to 48%, but it is far below the return on investment in the US stock market over the same period. In the meantime, it is true that domestic investors have been complaining that “the US market is going upwards, but the KOSPI is always stuck in the box (box ticket + KOSPI).” It is pointed out that the passive attitude of listed companies toward shareholder return eventually resulted in a Korea discount.
Bloomberg News analyzed that “Korean companies tend to be undervalued due to poor corporate governance and unfriendly attitudes toward minority shareholders.”
As long as the passive shareholder return trend in the Korean stock market continues, it is predicted that the continued inflow of foreign capital will be difficult. This is because there may be a perception that it is not suitable for long-term investment. In fact, blue chip stocks such as Hyundai Motor Company, Kia Motors, Posco Holdings, and HD Hyundai Heavy Industries have not reached the level of 10 years ago, even though they have set record-high performance records over the past 1-2 years.
“Insufficient shareholder return and low profitability are the most likely causes of the Korea discount,” said Kim Joon-seok, a senior researcher at the Korea Capital Market Institute, in a report earlier this year. ”he said.
