Korean stocks with price-to-book ratios below 1x increased from 567 companies to 597 over the past year despite the KOSPI index more than doubling, according to analysis presented at a forum on the 21st at the National Assembly Members' Office Building in Yeouido, Seoul. Kim Min-guk, CEO of VIP Asset Management, attributed the persistent undervaluation to South Korea's inheritance and gift tax law, which evaluates listed stocks based on average prices during the two months before and after inheritance or gift dates, creating an incentive for controlling shareholders to maintain lower stock prices. The government announced on the 14th in its '2026 Second Half Economic Growth Strategy' that it will reform the valuation method for severely undervalued listed stocks, with specific criteria to be included in tax reform plans at the end of this month.
PBR Below 1x Companies Rose to 597 Despite KOSPI Doubling
VIP Asset Management's analysis showed the KOSPI rose from 3186 one year ago to 6821 as of the morning of the 21st, a doubling in value. The average KOSPI PBR increased from 1.07x to 1.95x during the same period, an 83% rise. However, KOSPI-listed companies with PBR below 1x increased from 567 to 597, with their proportion of total listings expanding from 67.4% to 72.0%. Kim Min-guk stated at the forum titled 'Legislative Tasks for Anti-Stock Price Suppression Law to Resolve Korea Discount' that "the index rise over the past year may be an optical illusion due to semiconductor sector strength rather than a resolution of Korea Discount."
Inheritance Tax Structure Identified as Undervaluation Driver
Kim Min-guk identified the inheritance and gift tax valuation structure as one cause of persistent undervaluation at individual companies. Current inheritance and gift tax law evaluates listed stock value based on the average stock price during the two months before and after the inheritance or gift date. This structure reduces succession costs for controlling shareholders when stock prices are lower. Kim stated this creates an incentive for controlling shareholders facing succession to remain passive about enhancing corporate value through dividend increases, share buybacks, or investor relations activities. He noted that proving a specific company intentionally suppressed stock prices for succession purposes is difficult in practice.
Experts Propose Valuation Floor at 80% of Net Asset Value
Kim Min-guk argued that rather than punishing behavior after the fact, the economic incentive to maintain low stock prices should be eliminated. He proposed establishing a valuation floor ensuring that listed stocks subject to inheritance or gift taxation are not valued below 80% of net asset value. Kim stated, "The anti-stock price suppression law is not a law to blame people but a law to eliminate that incentive. We need a system that makes controlling shareholders and general shareholders look in the same direction, not a method that blames individual companies." Kim Jung-yeon, professor at Ewha Womans University Graduate School of Law, emphasized that low PBR itself should not be a regulatory target, explaining that companies discounted by the market due to low profitability and growth must be distinguished from companies passive about shareholder returns and corporate value enhancement to reduce succession costs.
Government Reviews Comprehensive Reform of Stock Valuation Method
The government is pursuing reform of the listed stock valuation method for inheritance and gift taxation. In the '2026 Second Half Economic Growth Strategy' announced on the 14th, the government stated it will improve the taxation valuation method for excessively undervalued listed stocks. Specific application targets and valuation standards will be included in tax reform plans to be announced at the end of this month. An amendment to the Inheritance Tax and Gift Tax Act proposed by Democratic Party Representative Lee So-young is also pending in the National Assembly. Kim Hwan-gi, an official from the Ministry of Economy and Finance's Property Tax Division, stated at the forum, "While we sympathize with the purpose and necessity, it is not only companies with low PBR that have an incentive to maintain low stock prices. We are comprehensively reviewing various factors beyond PBR." He added, "Since it is not easy to directly apply the supplementary valuation method for unlisted stocks to listed stocks, we are considering market trust and practical difficulties together."
FAQ
How many Korean companies now trade below their book value?
597 KOSPI-listed companies currently have price-to-book ratios below 1x, up from 567 one year ago, according to VIP Asset Management analysis presented at a forum on the 21st.
Why does South Korea's inheritance tax law create incentives for low stock prices?
Current inheritance and gift tax law evaluates listed stocks based on the average price during the two months before and after the inheritance or gift date, meaning lower stock prices reduce succession costs for controlling shareholders.
