$143M 'Value-up' fund to begin operations in bid to stabilize market

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$143M 'Value-up' fund to begin operations in bid to stabilize market

Published: 18 Nov. 2024, 18:44 Updated: 18 Nov. 2024, 19:18

SHIN HA-NEE
[email protected]

Audio report: written by reporters, read by AI

Financial Services Commission (FSC) Chairman Kim Byoung-hwan speaks during a stock market monitoring meeting held at the government complex in central Seoul on Monday. [FSC]

A previously-announced 200 billion won ($143 million) fund dedicated to investing in so-called “value-up” stocks will begin operation this week following a recent drop in domestic share prices.

The fund, raised by the Korea Exchange and related state-run agencies, will be invested in exchange-traded funds (ETFs) tracking the Korea Value-up Index and other stocks that unveiled plans to enhance shareholder returns but did not make it into the index.

The move was announced on Monday during a monitoring meeting held by the financial authorities amid persisting stock market uncertainties driven by the election victory of U.S. President-elect Donald Trump.

The financial authorities, including the Financial Services Commission (FSC) and Financial Supervisory Service (FSS), noted in a release that the recent election-driven stock market volatility has been “excessive” even compared to the Korean economy’s high reliance on exports and surging uncertainties surrounding potential U.S. policy changes.

As such, the financial policy chiefs in the meeting agreed to take an active role in order to mitigate the volatility amid an ongoing selling spree by foreign investors.

“The authorities will remain on high alert given the current internal and external market uncertainties, and will closely monitor the situation,” said FSC Chairman Kim Byoung-hwan.

Kim ordered a “speedy execution of the value-up fund investments,” adding that listed companies should also enhance their efforts to communicate their value-up initiatives with investors.

“The FSS will take sufficient and immediate action to prevent any market jitters if necessary,” said FSS Gov. Lee Bok-hyun, promising “a zero-tolerance approach” to any unfair practices conducted amid persisting uncertainties.

The benchmark Kospi inched up after briefly dipping below the 2,400-point mark on Nov. 15 following a five-day losing streak that began on Nov. 8. On Monday, it edged up by 2.16 percent to close at 2,469.07 points, but is still down 7.01 percent from the beginning of the year.

The downward trend has been mainly caused by the departure of foreign capital from the domestic stock market, with foreigners turning net sellers of Korean shares since September due to weaker investor sentiment in chip stocks and economic uncertainties.

The Korea Value-up Index, launched in September, is a key element of the government-led Corporate Value-up Program that aims to resolve the chronic undervaluation of the local stock market, a phenomenon often dubbed “Korea discount.”

The Korea Exchange, the country’s bourse operator, announced on Oct. 30 that it signed an agreement to establish the Corporate Value-up Fund with the Korea Securities Finance Corporation, the Korea Securities Depository, the Korea Financial Investment Association and Koscom, with 100 billion won raised by the five agencies and 100 billion won matched by the private sector.

The fund, which will begin operation this week, is expected to stimulate capital inflow into the sluggish domestic stock market.

The Korea Exchange and related agencies also plan to establish an additional fund worth 300 billion won, the financial authorities said.

Meanwhile, the bourse operator announced a partial rebalancing of its Korea Value-up Index on Monday, after initiative received a mixed reaction regarding its selection criteria for constituent stocks.

Companies that have executed their value-up plans after the announcement of the index on Sept. 24 qualify for additional screening, and the rebalancing will take effect on Dec. 20.

BY SHIN HA-NEE [[email protected]]