“Operation of increase fund to reduce volatility” “Encouragement of IR”… Suggestions for revitalizing the capital market

At a capital market-related policy meeting chaired by President Lee Jae-myung on the 13th, market officials suggested that a system is needed to alleviate stock market volatility, expand communication between companies and shareholders, and support vitalization of mergers and acquisitions (M&A).

On this day, President Lee held a policy meeting in Yeouido, Seoul under the theme of ‘A trusted capital market, asking questions and finding answers on the spot.’

Kim Jin-wook, chief executive of Citibank, who attended the meeting, said that foreign investors evaluate the domestic stock market as “too high in volatility” and that “the practical policy to alleviate volatility will be the operation of the Securities Market Stabilization Fund (Additional Fund).”

He said, “Simply giving a signal that an expansion fund will be activated will weaken the short-selling power,” and added, “Stock market volatility can automatically decrease, and when volatility eases, the number of foreigners who feel the charm of Korean stocks and want to make long-term investments will increase.”

President Lee sympathized with the direction of utilizing the expansion fund, but expressed his position that further review was needed regarding whether and how it would actually be operated.

There were also opinions that there was a need to improve the system to increase communication points between shareholders and companies.

Soo-hyun Ahn, a professor at Hankuk University of Foreign Studies, pointed out, “In addition to the price-to-book ratio (PBR), indicators such as profit ratio compared to invested capital are important in improving corporate value, but they are key information and cannot be provided,” adding, “Japan requires the board of directors to clarify indicators related to capital efficiency and profitability.”

He said, "Starting next year, Singapore will require companies to make it mandatory to disclose not only dividend policies, but also remuneration, performance indicators, and communication policies with shareholders. It would be good to let shareholders know how much effort a company has made to create value."

Seung-Woo Lee, Deputy Director of the Financial Supervisory Service, said, "The so-called earnings call system, in which companies directly answer shareholders' questions while announcing their performance, could be an alternative." He added, "Our country also needs to activate earnings calls and more actively and sophisticatedly inform shareholders of the information they want."

It was also suggested that a policy to encourage corporate information (IR) is needed to increase trust in the KOSDAQ market.

Lee Geon-jae, head of the KOSDAQ Research Center at IBK Investment & Securities, said, “The majority of companies do not receive visits or do not conduct IR. Last year, 26% of KOSDAQ companies announced that they would conduct IR, while about 80% of American companies did so.”

He continued, “There is a common belief in the market that companies only conduct IR when they need money. This is one of the areas that undermines trust in the KOSDAQ market.”

In response, President Lee commented, "I think the system needs to be supplemented," and Exchange Chairman Jeong Eun-bo responded, "Currently, it is mandatory for several years after listing, but we are considering making IR unconditional at least once a year while listing is maintained."

Kim Hak-gyun, head of the Shinyoung Securities Research Center, said that in order to encourage long-term investment, there is a need to consider allowing minors to sign up for an Individual Asset Management Account (ISA) and providing incentives proportional to the holding period. It was also suggested that there is a need to expand the long-term investment base by activating public offering funds.

Meanwhile, discussions regarding the introduction of the mandatory public purchase system also took place for a considerable amount of time. There were both opinions that the policy should be designed with a 100% tender offer to protect minority shareholders, and that the '50% + 1 share' tender offer plan was appropriate to prevent the M&A market from shrinking.