South Korea takes action to regulate "dual listings," stock index surges 5% for three consecutive gains

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The South Korean government announced that, in principle, it will ban listed companies from spinning off their subsidiaries for re-listing. This move, aimed at addressing the structural root of the so-called "Korea Discount," triggered a strong reaction in the capital market. The benchmark index surged for three consecutive days, with single-day gains soaring above 5% at one point.

Lee Eog-weon, Chairman of the Financial Services Commission, officially announced the measure at an investor conference in Seoul on Wednesday, stating that the government will "establish comprehensive standards to ensure that simultaneous listings of parent and subsidiary companies do not undermine the rights and interests of ordinary shareholders," and "in principle, strictly review and forbid repeated listings."

After the news broke, the South Korean Composite Stock Price Index (Kospi) rose over 5% intraday; Kospi 200 futures also jumped more than 5%, triggering the circuit breaker for program trading.

Samsung Electronics’ shareholder meeting added fuel to market sentiment on the same day—the chip giant gave an optimistic outlook on demand for artificial intelligence, and both Samsung Electronics and SK Hynix surged over 7%. Holding companies like CJ Group and SK Corporation also saw sharp increases, having already strengthened earlier in the week due to related policy news being reported by local media.

This policy issuance is the latest step in President Lee Jae-myung’s push to modernize capital market governance and continually reduce the "Korea Discount". "Double listing" has long been seen as a structural ailment suppressing holding company valuations and causing chronic undervaluation in South Korea's stock market. The ban has boosted investor confidence, but the market is assessing whether the reform can translate into actual improvement in shareholder returns.

Core of the Policy: Strict Review, Principally Banning Repeated Listings

"Double listing" refers to a listed parent company spinning off its high-quality subsidiary for a separate public listing. This practice is thought to systematically dilute the share price of holding companies and is considered the structural root of the long-term discount in South Korea’s stock market.

Lee Eog-weon stated, that the government will, in principle, through strict review, ban repeated listing to protect ordinary shareholders' rights. According to Bloomberg, the new regulation is expected to impact IPO plans of major chaebol-affiliated companies, such as SK, HD Hyundai, and Hanwha Group.

Fibonacci Asset Management global CEO Jung In-yoon pointed out that chaebol groups have long repeatedly spun off their best business units for listing, "causing equity dilution and hindering the enhancement of surviving company value." He believes that as the new regulation tightens the listing of affiliated companies, the number of high-quality business units being independently spun off for listing will significantly decrease. The usual path for large chaebols to finance through affiliated company IPOs will likely be blocked.

The 2022 IPO of LG Energy Solution is a often-cited typical case. LG Chem spun off this high-growth battery business at the peak of the electric vehicle boom, after which the parent company’s share price fell about 9% in a month and remained sluggish.

Korea Discount: Valuation Gap Remains Significant

Although the Kospi has cumulatively risen over 121% since the beginning of 2025, with market capitalization increasing by about $1.7 trillion, the "Korea Discount" problem remains prominent.

The current price-to-book ratio for the Kospi is about 1.7 times—significantly higher than the historical low of less than 1, yet still lower than 1.9 times for the Tokyo Stock Exchange Index and 1.8 times for China’s CSI 300.

The comparison in earnings is even more striking. According to Bloomberg data, earnings for Kospi constituents are expected to more than double over the next 12 months, far above the 12% for Tokyo Stock Exchange constituents, showing that current valuations remain attractive relative to fundamentals.

Jeong Cheong-rae, leader of the ruling Democratic Party, stated last week that South Korea’s price-to-book ratio is far below the average of around 3 times for developed economies, and called for moving from a "Korea Discount" to a "Korea Premium." JPMorgan has set a target for the Kospi at 7,500 points, which implies more than 41% upside from current levels, but analysts say this depends on further substantive progress in corporate governance reform.

Implementation: Gap Between Policy Announcement and Shareholder Returns Remains

Though the "double listing" ban has boosted market sentiment, multiple investors cautioned that it remains to be seen whether the policy will actually translate into real improvements in companies’ fundamentals.

Indrani De, Global Head of Investment Research at FTSE Russell, pointed out that chaebols are a dominant feature of South Korean business, resulting in complex cross-shareholding structures, insufficient protection for minority shareholders, and historically low dividend yields. She said that investors want to see "policy changes actually translate into improved return on equity (ROE)," rather than just being announced at the policy level.

Jonathan Pines, portfolio manager at Federated Hermes, believes that changes to inheritance tax law are vital.

Currently, controlling shareholders have a motive to tolerate or even actively depress share prices to deal with wealth succession.

He said, "If a law requiring inheritance taxation based on net assets instead of market value is passed, it will fundamentally eliminate the motivation to maintain low share prices." Once the government reforms are ultimately implemented, the "Korea Discount" could be thoroughly eradicated.

Christian Heck, portfolio manager at First Eagle Investments, believes that although South Korea is advancing reforms similar to Japan’s, its valuation still has "room for normalization" toward Japanese levels, indicating that the reform dividend has not yet been fully realized.

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