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Saturday, March 2, 2024

Gov’t looks to end ‘Korea Discount’ with foreign exchange overhaul

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Kim Byoung-hwan, center, the first vice minister of economy and finance, speaks during an investor event held on Monday in London with representatives from foreign investment firms in attendance. [MINISTRY OF ECONOMY AND FINANCE]
Kim Byoung-hwan, center, the first vice minister of economy and finance, speaks during an investor event held on Monday in London with representatives from foreign investment firms in attendance. [MINISTRY OF ECONOMY AND FINANCE]

The Finance Ministry will facilitate foreign exchange transactions for overseas investors, a move in line with the government’s latest initiative to lure foreign investors into the Korean financial market and resolve the so-called “Korea Discount,” or undervaluation of the country’s stocks.

Kim Byoung-hwan, the first vice minister of economy and finance, on Monday met with potential investors in London to present the government’s plan for structural improvement in the foreign exchange market, the ministry said Tuesday.

Attending the event were 10 investment firms including J.P. Morgan, Wellington, UBS, Morgan Stanley and Pimco.

In response to the investment firms’ request for measures to mitigate settlement failure risks in foreign exchange transactions, the vice minister pledged to improve the relevant rules within the first quarter to facilitate currency exchange with a wider range of counterparties in various time zones for foreign investors.

Details on the policy revision will announced in February, after discussions with relevant government agencies including the Financial Services Commission (FSC) and Bank of Korea, according to the ministry.

The implementation of new and upcoming measures mark “an important first step” to enhance foreigners’ access to the Korean currency to the level of other key currencies, said Kim, promising to further improve the foreign exchange market system in Korea.

Korea recently opened up the exchange market to foreign banks and extended the trading hours in line with business hours in London.

During the investor event, Kim also mentioned the government’s latest efforts to enhance the Korean market’s fundamental attractiveness, including the upcoming “Corporate Value-up” program.

The program, designed to resolve the Korea Discount, aims to drive up prices of undervalued stocks by encouraging public companies to come up with improved shareholder return policies and measures to boost stock prices.

Korea Discount refers to the overall underpricing of Korean stocks compared to those of peers outside the country, which is often considered to have been caused by weak shareholder returns, governance structure and geopolitical risks in the region.

Details of the Value-up program are set to be announced in February.

The program was first mentioned by FSC Chairman Kim Joo-hyun on Jan. 17, who said that it will be applied to companies with low price-to-book ratio, or PBR, which is an indication of the market’s valuation of the company. Share prices of some companies in the financial, retail and automotive sectors, which are considered to have been generally undervalued in the market, have risen steeply since.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]