South Korea's government has announced it will essentially prohibit listed companies from spinning off subsidiaries for separate listings. This governance reform, aimed at addressing the structural roots of the "Korea Discount," prompted a strong reaction in capital markets, with the benchmark stock index rising for three consecutive days and surging over 5% in a single session.
Financial Services Commission Chairman Lee Eog-weon formally announced the measures at an investor conference in Seoul on Wednesday. He stated the government will "establish sound standards to ensure that simultaneous listings of parent and subsidiary companies do not harm the rights and interests of ordinary shareholders" and will "in principle prohibit duplicate listings through strict reviews."
Following the announcement, the Korea Composite Stock Price Index (Kospi) saw intraday gains exceeding 5%. Kospi 200 futures also surged over 5%, triggering a circuit breaker for program trading.
Sentiment was further buoyed by Samsung Electronics' shareholder meeting the same day, where the chip giant provided an optimistic outlook on artificial intelligence demand. Shares of both Samsung Electronics and SK Hynix rose more than 7%. Holdings companies like CJ Group and SK Inc. also saw significant share price increases, having already strengthened earlier in the week after local media reports hinted at the policy.
This policy is the latest step in President Lee Jae-myung's push to modernize capital market governance and systematically reduce the "Korea Discount." Dual listings have long been seen as a structural flaw that suppresses holding company valuations and contributes to the chronic undervaluation of Korean stocks. While the ban has boosted investor confidence, the market is also assessing whether the reforms can translate into tangible improvements in shareholder returns.
**Policy Core: Strict Scrutiny, Principle-Based Ban on Duplicate Listings**
"Dual listing" refers to the practice where a listed parent company spins off a high-quality subsidiary for a separate public listing. This is seen as systematically diluting the parent company's share price and is considered a key structural cause of the long-standing Korea Discount.
Chairman Lee Eog-weon stated that duplicate listings will be prohibited in principle through strict reviews to protect ordinary shareholders' rights. According to Bloomberg, the new rules are expected to impact the IPO plans of affiliated companies under major conglomerates like SK, HD Hyundai, and Hanwha Group.
Chung In-yoon, CEO of Fibonacci Asset Management Global, noted that conglomerates have long repeatedly spun off their best business units for listing, "causing equity dilution and hindering value improvement in the remaining companies." He believes that as rules tighten for affiliate listings, the number of high-quality business units spun off independently will decrease significantly, obstructing the usual path for large conglomerates to raise funds via affiliate IPOs.
The IPO of LG Energy Solution in 2022 is a frequently cited example. LG Chem spun off this high-growth battery business at the peak of the electric vehicle boom, after which the parent company's stock fell about 9% within a month and remained depressed for an extended period.
**Korea Discount: Valuation Gap Remains Significant**
Although the Kospi has risen over 121% since the start of 2025, adding approximately $1.7 trillion in market capitalization, the "Korea Discount" issue remains prominent.
The Kospi's current price-to-book ratio is about 1.7x. While this is a significant recovery from historical lows below 1x, it remains lower than Japan's Topix index at 1.9x and China's CSI 300 index at 1.8x.
The contrast in earnings is even sharper. According to Bloomberg-compiled data, Kospi component companies are expected to more than double their earnings over the next 12 months, far exceeding the 12% growth forecast for Topix components, indicating that current valuations remain attractive relative to fundamentals.
Last week, ruling Democratic Party leader Chung Cheong-rae stated that Korea's P/B ratio is significantly lower than the developed market average of around 3x and called for a shift from a "Korea Discount" to a "Korea Premium." JPMorgan has set a target of 7500 points for the Kospi, implying over 41% upside from current levels, but analysts note this depends on corporate governance reforms making further substantive progress.
**Reform Implementation: Gap Between Policy Announcement and Shareholder Returns**
Despite the "dual listing" ban boosting market sentiment, several investors caution that whether the policy translates into genuine improvements in corporate fundamentals remains to be seen.
Indrani De, Global Head of Investment Research at FTSE Russell, pointed out that conglomerates are a defining feature of Korean corporations, leading to complex cross-shareholding structures, insufficient protection for minority shareholders, and low dividend yields. She stated that investors want to see "policy changes concretely translate into higher Return on Equity (ROE)," not just remain as policy announcements.
Jonathan Pines, Portfolio Manager at Federated Hermes, believes revision of the inheritance tax law is crucial. Under the current system, controlling shareholders have an inherent incentive to tolerate or even actively suppress share prices to manage wealth transfer. He said, "If a bill requiring inheritance tax to be levied based on net asset value rather than market value is passed, it would fundamentally eliminate the incentive to maintain low stock prices." If related government reforms are ultimately implemented, the "Korea Discount" could potentially be eliminated.
Christian Heck, Portfolio Manager at First Eagle Investments, noted that while Korea is pursuing reforms similar to Japan's, its valuations still have "normalization space" to converge with Japan's, indicating that reform dividends have not yet been fully realized.