South Korea Takes Action to Regulate "Dual Listings," Stock Index Soars 5% for Three Consecutive Gains

The South Korean government announced that, in principle, listed companies will be prohibited from spinning off and relisting their subsidiaries. This governance reform measure, which addresses the root structural issue of the “Korean discount,” quickly triggered a strong response in the capital markets. The benchmark stock index rose for three consecutive days, with a single-day increase exceeding 5% at one point.

Lee Eog-weon, Chairman of the Financial Services Commission of Korea, officially announced the measure on Wednesday at an investor conference in Seoul, stating that the government will “establish comprehensive standards to ensure that both parent and subsidiary companies are listed simultaneously without harming the rights and interests of common shareholders,” and that “in principle, relisting will be prohibited through strict review.”

Following the announcement, the Korea Composite Stock Price Index (Kospi) surged by over 5% intraday; Kospi 200 futures also jumped more than 5%, triggering a circuit breaker in algorithmic trading.

On the same day, Samsung Electronics’ shareholders’ meeting further boosted market sentiment—this chip giant expressed an optimistic outlook on AI demand, with Samsung Electronics and SK Hynix both rising over 7%. Shares of holding companies like CJ Group and SK Corporation also saw significant gains, having already been strengthened earlier this week due to related policy news exposed by local media.

This policy rollout is the latest step in President Lee Jae-myung’s efforts to modernize capital market governance and continuously reduce the “Korean discount” systemic issue. The long-standing “dual listing” practice has been viewed as a structural problem suppressing holding company valuations and causing chronic undervaluation of the Korean stock market. The ban has boosted investor confidence, but the market is also assessing whether the reform can truly translate into tangible improvements in shareholder returns.

Policy Focus: Strict Review, Principled Ban on Re-Listing

“Dual listing” refers to the practice where a listed parent company spins off its high-quality subsidiaries and lists them separately. This approach is believed to cause systematic dilution of the parent company’s stock price and is regarded as a fundamental root of Korea’s long-term undervaluation.

Lee Eog-weon stated that the government will, through strict review, generally prohibit re-listing to protect the rights of common shareholders. According to Bloomberg, this new regulation is expected to impact IPO plans of major chaebols such as SK, Hyundai Motor, and Hanwha Group’s related companies.

Jung In-yoon, CEO of Fibonacci Asset Management, pointed out that chaebols have long repeatedly spun off their best business units, “causing equity dilution and hindering the enhancement of the company’s intrinsic value.” He believes that tightening regulations on related company listings will significantly reduce the number of high-quality business units being independently spun off in the future, and that the usual path of large chaebols relying on related company IPOs for financing will be obstructed.

LG Energy Solution’s IPO in 2022 is often cited as a typical case. LG Chem spun off its high-growth EV battery business at the peak of the EV boom, but the parent company’s stock price fell by about 9% within a month and entered a long-term slump.

Korean Discount: Valuation Gap Still Deep

Although the Kospi has risen more than 121% since early 2025, adding approximately $1.7 trillion in market value, the issue of the “Korean discount” remains prominent.

The current price-to-book ratio of Kospi is about 1.7 times, a significant rebound from the below 1 times historical low, but still below Japan’s Topix index at 1.9 times and China’s CSI 300 at 1.8 times.

Profitability comparisons are even more striking. According to Bloomberg data, Kospi component stocks are expected to see earnings more than double in the next 12 months, far exceeding Japan’s Topix at 12%, indicating that current valuations still have fundamental appeal.

Last week, Chung Cheong-rae, leader of the ruling Democratic Party, stated that Korea’s price-to-book ratio is far below the average of about 3 times in developed economies, and called for moving from the “Korean discount” toward a “Korean premium.” JPMorgan has set a target of 7,500 points for the Kospi, implying over 41% upside from current levels. However, analysts note that this depends on further substantive progress in corporate governance reforms.

Implementation of Reforms: Policy Declarations Still a Distance from Shareholder Returns

While the “dual listing” ban has boosted market sentiment, many investors caution that whether the policy can truly translate into tangible improvements in corporate fundamentals remains to be seen.

Indrani De, Head of Global Investment Research at FTSE Russell, pointed out that chaebols are the dominant feature of Korean enterprises, leading to complex cross-shareholding structures, insufficient minority shareholder protections, and low dividend yields. She said investors want to see “policy changes effectively translate into higher return on equity (ROE),” rather than remaining at the policy declaration stage.

Jonathan Pines, Portfolio Manager at Federated Hermes, emphasized that reforming inheritance tax laws is crucial.

Under the current system, controlling shareholders have intrinsic motivations to tolerate or even deliberately suppress stock prices to facilitate wealth transfer.

He stated that “if a bill requiring inheritance tax to be based on net assets rather than market value is passed, it will fundamentally eliminate the motivation to keep stock prices low.” Once government reforms are fully implemented, the “Korean discount” could be thoroughly eliminated.

Christian Heck, Portfolio Manager at First Eagle Investments, believes that although Korea is pushing forward with reforms similar to Japan’s, there is still “normalization space” for valuations to align more closely with Japan, indicating that reform benefits have yet to be fully realized.

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