South Korea Cracks Down on "Dual Listing," Stock Index Surges 5% to Achieve Three-Day Gains

How can AI address Korea’s persistent dual listing ban and fundamentally resolve the stock market discount structure?

The Korean government announced a principled ban on listed companies spinning off and relisting subsidiaries. This move, aimed at addressing the root causes of the “Korean discount” structural issue through governance reform, quickly triggered strong market reactions. The benchmark 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, officially announced the measure Wednesday at an investor conference in Seoul. He stated that the government will “establish comprehensive standards to ensure that parent and subsidiary companies can be listed simultaneously without harming the rights and interests of common shareholders,” and that it will “generally prohibit repeated listings through strict review.”

Following the announcement, the Korea Composite Stock Price Index (Kospi) intraday surged over 5%; 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 tech 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 surged significantly, having already gained earlier this week after related policy news was reported by local media.

This policy rollout is the latest step in President Lee Jae-myung’s push to modernize capital market governance and continuously compress the “Korean discount” systemic issue. Long considered a structural disease that suppresses holding company valuations and causes chronic undervaluation of the Korean stock market, the ban has boosted investor confidence. However, the market remains cautious about whether the reform can truly translate into tangible improvements in shareholder returns.

Policy Focus: Strict Review, Principled Ban on Repeated Listings

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

Lee Eog-weon stated that the ban will be implemented through strict review to generally prohibit repeated listings, aiming to protect the rights of ordinary shareholders. According to Bloomberg, this new regulation is expected to impact IPO plans of major chaebols such as SK, Hyundai Mobis, and Hanwha Group subsidiaries.

Fibonacci Asset Management CEO Jung In-yoon pointed out that chaebols have long repeatedly spun off their best business units for listing, which “causes share dilution and hampers the enhancement of the company’s intrinsic value.” He believes that tightening the listing of affiliated companies under the new regulation will significantly reduce the number of high-quality business units being independently spun off and listed, likely blocking the usual path of large chaebols relying on IPOs of affiliates for financing.

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

Korea Discount: Valuation Gap Still Deep

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

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

Profitability comparisons are even more striking. Bloomberg data shows that Kospi component stocks are expected to more than double their earnings over the next 12 months, far exceeding Japan’s Topix at 12%, indicating that current valuations still appear attractive relative to fundamentals.

Chung Ching-lai, leader of South Korea’s ruling Democratic Party, last week noted that Korea’s price-to-book ratio is about one-third of the average in developed economies and called for a move from “Korean discount” toward “Korean premium.” JPMorgan has set a target of 7,500 points for the Kospi, implying over 41% upside from current levels. However, analysts caution that further substantive progress in corporate governance reform is necessary for such gains.

Implementation of Reforms: Policy Declarations and Shareholder Returns Still Diverge

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

Indrani De, Head of Global Investment Research at FTSE Russell, pointed out that chaebols are the dominant feature of Korean companies, 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 just remain at the policy declaration level.

Federated Hermes portfolio manager Jonathan Pines believes that revising inheritance tax laws is crucial.

Under current systems, controlling shareholders have intrinsic motives 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.

First Eagle Investments portfolio manager Christian Heck believes that although Korea is pushing reforms similar to Japan’s, its valuation still has room to normalize toward Japanese levels, indicating that reform benefits have yet to be fully realized.