The three things to know
A proposed law to stop controlling shareholders from deliberately suppressing their companies' share prices — tucked into the government's tax reform package announced on the 3rd — dominated market debate throughout last week. The measure, aimed at curbing the practice of cutting dividends or delaying share buybacks to reduce inheritance tax bills, drew criticism even from within the ruling party after its scope was narrowed far below the original proposal, with some dismissing it as a "pardon" for wrongdoers rather than a deterrent.
The controversy does not end with a single bill. When combined with a newly enacted requirement to cancel treasury shares and a policy shift towards banning dual listings, the outlines of a second act to South Korea's "Value-Up" campaign emerge — one that takes aim at the full range of practices through which controlling shareholders and opaque governance structures have eroded the value of minority investors' stakes.
The timing is notable. The large-cap chipmakers that powered the KOSPI index higher in the first half of the year are now consolidating. That could create the conditions for capital to flow back towards Value-Up-related stocks that were overlooked during the semiconductor rally.
Last week's issue — the share-price suppression bill
The trigger was the government's 2026 tax reform package, unveiled on the 3rd. The package included an amendment to inheritance and gift tax law colloquially dubbed the "share-price suppression prevention bill." The current system creates a perverse incentive: a controlling shareholder approaching a succession can reduce the inheritance tax due on a transfer of shares by depressing the company's stock price — for instance, by cutting dividends or postponing share buybacks. The bill aims to penalise this behaviour.
The legislative push began with a bill introduced in May last year by Lee So-young, a lawmaker of the main opposition Democratic Party of Korea. After President Lee Jae-myung publicly cited suspected share-price manipulation involving exchangeable bonds issued by a KOSDAQ-listed company and demanded faster action, debate reignited as the "second chapter" of capital-market reform following last year's revision to the Commercial Act.
The problem lay in the details. Ms Lee's original bill defined any company with a price-to-book ratio (PBR) below 0.8x as presumptively guilty of suppressing its share price — a threshold that would have caught more than 1,300 companies on the KOSPI alone. The government's version is far narrower: a company must satisfy at least one of three criteria — remaining in the bottom quartile (KOSPI) or bottom decile (KOSDAQ) of its sector by PBR for 12 of the past 13 half-year periods; having damaged its corporate value through dual listings or exchangeable bond issuance in the past year; or having seen its share price fall by more than 30% over the past three years. Simulations suggest the bill would apply to roughly 100 companies.
The backlash was swift. The Korea Corporate Governance Forum called the measure inadequate, arguing it effectively grants a clean bill of health to the vast majority of low-PBR companies. Even at a forum organised by ruling-party lawmakers, critics argued the bill rides roughshod over taxpayers' rights. Securities analysts were similarly underwhelmed, with simulations showing little practical difference from the current regime. The warning from the brokerage community: buying low-PBR stocks simply on anticipation of this bill would be unwise.
Extension one — mandatory cancellation of treasury shares
Where the share-price suppression bill addresses the tax side of the equation, the mandatory treasury-share cancellation rule, which has already been enacted, is a more direct instrument. Under the Commercial Act amendment passed in March, companies must cancel newly acquired treasury shares within one year and existing holdings within 18 months. South Korean conglomerates (known as chaebol) had long treated accumulated treasury shares as a tool for defending management control, holding them indefinitely without cancelling them. That practice is now institutionally prohibited.
Samsung Electronics has already announced a ₩10trn share buyback-and-cancellation programme; SK Inc., the holding company of the SK conglomerate, has committed to cancelling a substantial portion of its existing treasury-share holdings. When the bill was first tabled, Bookook Securities and Infovine — two companies with unusually high proportions of treasury shares — both hit their daily price limit, demonstrating that the market had already registered the theme's sensitivity.
Extension two — ending dual listings
The third pillar is the push to unwind dual listings. The practice of listing both a parent company and a subsidiary allows the same underlying business to be valued twice, and has long been cited as a principal driver of the "Korea discount" — the persistent gap between Korean equities' valuations and those of peers elsewhere. After President Lee personally highlighted the problem, the financial regulator announced in March a shift to a "prohibited by default, permitted only by exception" stance on new dual listings.
The rules would apply not just to subsidiaries created through physical spin-offs ("split listings," a particularly contentious form) but also to acquired or newly established subsidiaries in which the parent exercises effective control. Parent companies that push ahead with dual-listed subsidiaries would also owe a fiduciary duty of loyalty to their own shareholders.
The scale of the problem is striking. Approximately 18% of South Korean listed companies are part of a dual-listing structure, compared with 0.35% in the United States and 4% in Japan.
The most prominent examples illustrate the distortions involved. LG Chem listed its battery unit, LG Energy Solution, through a physical spin-off; LG Chem's market capitalisation is now roughly one-quarter that of LG Energy Solution, even though LG Chem is the parent. The Kakao group generated controversy through a string of subsidiary listings — KakaoBank and Kakao Pay among them. The SK group's multi-tiered holding structure means that as SK Hynix, the memory chipmaker, grows in value, the discount applied to intermediate holding company SK Square and ultimate holding company SK widens in tandem.
Cases where the problem has already been resolved offer instructive precedents. The three-way merger of Meritz Financial Group, Meritz Securities and Meritz Fire & Marine Insurance, and the merger of Celltrion and Celltrion Healthcare, are both cited as examples of the rerating that can follow a governance restructuring.
Why this is resurfacing now
The investment significance of these three reform tracks derives partly from their coincidence with a pause in the semiconductor trade. The KOSPI's gains in the first half of the year were driven almost entirely by Samsung Electronics and SK Hynix; towards the end of last month, the unwinding of leveraged positions accompanied a historic rebound in both stocks. Since then, the large-cap chipmakers have been treading water. When the dominance of a single sector eases, capital often rotates towards areas that were overlooked during the rally. Value-Up-related stocks — particularly those with low PBRs, high dividend yields, or lingering governance issues — were largely sidelined throughout the first half. A semiconductor consolidation phase may be precisely the moment when this neglected cohort, backed by policy momentum, finds its way back into investors' attention.
Political dynamics add a further dimension. The volatility generated by single-stock leveraged products, compounded by the KOSPI's sharp sell-off earlier this month, has pushed President Lee Jae-myung's approval rating from 67% in April to 44.5% recently — a fall of 7.4 percentage points in a single week, the steepest drop since he took office. Positive assessments of his economic management have slid from 58% in March to 43%. The Financial Times has noted that the stock-market rally, once held up as a signature achievement of Mr Lee's presidency, is now ricocheting against him politically. The head of the Financial Supervisory Service has expressed regret over the introduction of leveraged ETFs; the floor leader of the Democratic Party of Korea has pledged to work with the government to reduce market uncertainty.
Against this backdrop, pressing ahead with the share-price suppression bill in its currently criticised form carries a real political cost. Indeed, on the 7th, President Lee reportedly rebuked aides for producing a bill that failed to honour the original reform intent and ordered a comprehensive review. With public sentiment firmly on the side of investor protection, the legislative process may well push the final bill closer to the more expansive original proposal — and if so, that would furnish additional policy momentum for the Value-Up theme as a whole.
Grounds for scepticism
All three policies share a common vulnerability to disillusionment, however, and that deserves acknowledgement.
The share-price suppression bill faces criticism that its eligibility criteria are too tight, and the ultimate shape of the legislation remains uncertain given disagreements within the ruling party. The treasury-share cancellation and dual-listing rules are directionally clear, but their real-world impact will depend heavily on when and at what scale individual companies comply with cancellation requirements, and on how broadly the exceptions to the dual-listing ban are drawn.
Shinhan Investment Corp has cautioned that not all low-PBR companies will benefit equally — sectoral conditions and underlying fundamentals matter. Mirae Asset Securities has warned against approaches driven purely by policy optimism. The direction of all three policies is unambiguous; the execution is not. Rather than buying the theme wholesale, analysts advise a company-by-company approach that waits for concrete evidence of implementation.
Stocks to watch
Share-price suppression bill (chronically low-PBR sectors): Steel, banks, insurance, utilities, transport and broadcasting and telecommunications are the most frequently cited sectors. Shinhan Investment Corp, screening for companies with a PBR below 1x, return on equity above 5%, a controlling shareholder stake of at least 20%, a net cash position and a dividend payout ratio below 40%, highlights Hankook & Company, Korean Re, Hyundai Green Food, Youngone Corporation and DB Insurance as potential beneficiaries. Sectors such as steel, chemicals and retail — where underlying business conditions are depressed — may see limited rerating from regulatory change alone.
Treasury-share cancellation (large holders with uncancelled shares): Bookook Securities and Infovine were the early market darlings when the bill was first tabled. Others with high treasury-share ratios include Mecarus, Cho Kwang Leather, Lotte Holdings, Shinnyung Securities and Telcowear. In chemicals, Taekwang Industrial, KCC, Kumho Petrochemical and SKC stand out. Analysts counsel against fixating solely on treasury-share ratios: equally important are whether a company has disclosed a concrete cancellation plan and how strong the controlling shareholder's incentive to retain the shares for defensive purposes remains.
Dual-listing resolution (holding companies trading at a discount): LG Chem, Kakao, SK and SK Square — each of which carries a discount attributable to the separate listing of a valuable subsidiary — are the most frequently cited candidates for rerating. This is the most patient of the three themes: a tangible governance catalyst, whether a merger, a stake disposal or some other structural change, will almost certainly be required before the discount narrows materially in the share price.
What to watch next: The key variables are how the three competing legislative proposals — the bills from lawmakers Lee So-young and Kim Hyun-jeong, and the government's own draft — are reconciled in the National Assembly, and how broadly the Korea Exchange draws the exceptions to its forthcoming dual-listing review criteria. Whether political pressure from falling approval ratings forces the government's bill back towards the more stringent original version is also worth monitoring closely. Until the fine print is settled on both fronts, the gap between expectations and proven effectiveness is likely to remain a persistent source of volatility in the stocks concerned.