South Korea's KOSPI Index Surpasses S&P 500 Despite Valuation Discount, Analysis Shows

According to Kim Hak-kyun, research center director at Shinhan Securities, South Korea's KOSPI index recently surpassed the U.S. S&P 500 index for the first time since both started at 100 in January 1980, with KOSPI now at approximately 8,000 compared to S&P 500 above 7,000. However, despite this milestone, Korean companies trade at a significant discount: over half of listed companies have a price-to-book ratio (PBR) below 1, indicating that market valuations are lower than companies' liquidation values.

Kim attributed the valuation gap to weak earnings returns. Cited companies maintaining a return on equity (ROE) of only 3-4% despite holding substantial accumulated capital, which Kim described as "value destruction" as it offers investors no better returns than bank deposits. Kim emphasized that mature companies should either distribute capital through dividends, implement buybacks to increase ROE, or demonstrate clear growth plans to shareholders.