Companies’ performance is what matters

The Japanese stock market is steaming with the benchmark Nikkei index hitting an all-time high after topping 39,000, a level last touched 34 years ago shortly before the bubble burst in 1990. Stock markets in the United States, Taiwan, Germany, and France are also setting records. Nvidia’s celebration of its stellar performance, which sent the chipmaker’s stock skyrocketing, sent bullish ripples across the world over the rise of an artificial intelligence-powered boom.

Japan’s stock heat owes largely to strong profits by local exporters benefiting from a weak currency. The yen’s weakening largely stems from the Bank of Japan’s stubborn ultra-loose monetary policy conversely maintained against the global tightening trend. The combined net profit of 1,020 Japanese listed companies is estimated to reach a record high of 43.5 trillion yen ($289.2 billion) in the first quarter. Toyota Motor’s market capitalization has outsized Samsung Electronics’ for the first time in seven and a half years thanks to its historic net profit last year.

Japan’s policy to induce shareholder-friendly actions from companies — and the introduction of the Nippon Individual Savings Account to promote stock investment by retailers — also has helped feed the frenzy. The Tokyo Exchange’s pressure on companies whose price-to-book ratio (PBR) falls below 1 time to present initiatives for progress last year also bolstered confidence in the market. A stock with a PBR ratio below 1 indicates a performance under book value.

The Korean government is trotting out measures to reinvigorate the local exchange market plagued with so-called “Korea Discount” after benchmarking Japan’s actions. Among the measures are the disclosure of companies whose PBR falls below 1 times. But there cannot be a panacea to cure Korea Discount overnight.

The government’s over-eagerness to prop up stocks can lead to contentious actions like the blanket ban on short selling or tax easing on capital gains from stock trade, which go against global standards. The undervaluation of Korean stocks owes much to multiple reasons. Stock experts cite a lack of transparency in our corporate ownership structure; scanty shareholder reward programs such as dividends; inconsistent government policy; and excessive inheritance tax. Financial authorities must try to move one stumbling block at a time.

What defines a stock is ultimately the company’s performance. What matters is adhering to the economic basics like building a business-friendly environment, removing unnecessary regulations, and traditional industries’ overriding selfishness to block innovations and new entries for their own interests. The stock price index merely reflects the cool judgment of the performance of companies.