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July 16, 2024

Value-up Program optimism brings Kospi to two-year high

PUBLISHED : July 05, 2024 - 09:03

UPDATED : July 05, 2024 - 09:03

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An electronic signboard at KEB Hana Bank in Seoul shows the benchmark KOSPI having risen 1.11 percent, to close at a two-year high of 2,824.94 on Thursday. (Yonhap)

South Korean shares hit the highest level in nearly two and half years on Thursday, with much-awaited tax incentive plans for the Korean government’s program to boost the stock market taking shape.

The benchmark Kospi rose 1.11 percent to close at 2,824.94, reaching the highest since January in 2022.

Institutional and foreign investors were net buyers of shares worth 1.11 trillion won ($803.8 million) and 321.5 billion won, respectively, while retail investors sold off 1.41 billion of shares.

"Following the government's announcement of the 'Dynamic Economy Road Map' the previous day, automobile stocks and financial stocks continued to strengthen and broke new highs," said Kim Ji-won, an analyst at KB Securities.

The road map refers to the medium-to-long term economic scheme set by President Yoon Suk Yeol's administration to reignite the Korean economy including measures to promoting corporate growth through the capital market and increase middle-class assets.

Bank stocks continued their rally after the Korean government unveiled details of a tax incentive package for shareholders and companies participating in the “Corporate Value-up Program” aimed at encouraging Korean listed companies to increase shareholder returns to boost the undervalued stock market.

As Korean banks are expected to adopt more shareholder-friendly policies thanks to the new tax benefits, KB Financial Group kept its bullish run. The stock climbed 1.78 percent. It has risen more than 50 percent this year, showing the largest increase among financial stocks.

With KB Financial Group leading the pack, other financial group stocks including Shinhan, Hana, BNK and JB also notched strong gains. Samsung Life Insurance gained over 3 percent to become the stock with the 19th-highest value in terms of market cap on the Kospi.

As the government plans to submit a tax reform bill, which will include a tax break scheme for value-up program participants, to the National Assembly at the end of this month, Daishin Securities analyst Park Hye-jin expected banks would see further momentum for rising prices.

“The tax and commercial law amendments will be submitted to the National Assembly this month, and if tax benefits are provided, policies will be revitalized,” Park said. “Ultimately, as there must be financial room for shareholder return, especially dividend policy, heavyweights (like KB) in the industry will drive the upward trend,” she said.

According to the government's announcement on Wednesday, the corporate tax rates of companies that take part in the Corporate Value-up Program by voluntarily presenting measures to improve their valuation, including an increase in payouts and cancellation of treasury stock, will be cut by 5 percent points, starting from the second half of this year.

Market kingpin Samsung Electronics added 3.42 percent to close at 84,600 won on a media report that the tech giant’s latest High Bandwidth Memory chips had passed Nvidia's tests for use with the US firm's artificial intelligence processors. Although the Korean conglomerate denied the report, the stock closed higher.

Its second-quarter earnings, set to be unveiled Friday, are also giving it a boost with analysts’ sanguine outlook.

“The positive trend will continue centered on large-cap stocks due to the decline in market interest rates and the stabilization of the won-dollar exchange rate, but the spread of risk-on sentiment is expected to be limited depending on whether additional profit-taking stocks are sold centered on existing leading stocks,” said Kiwoom Securities analyst Han Ji-young.

Expectations of a US interest rate cut also helped boost the Kospi market.

Private sector employment in the US rose by 150,000 in June, according to the US Automatic Data Processing Research Institute’s monthly report. The figure fell short of the 160,000 jobs the market expected.

The softer-than-expected job creation data led the market to anticipate an increased chance of a US Federal Reserve rate cut this year.

The Kosdaq, dominated by small and medium-sized companies, closed at 840.81, up 0.56 percent.

By Park Han-na (hnpark@heraldcorp.com)

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