VIP Asset Management reported that 586 KOSPI-listed companies, representing 73% of all listed firms, trade below 1x price-to-book ratio (PBR) as of July 21, despite the index nearly doubling over the past year. The asset manager attributed this persistent undervaluation to South Korea's inheritance and gift tax structure, which calculates tax based on a four-month average stock price surrounding the reference date, creating incentives for controlling shareholders to maintain low valuations. VIP Asset Management CEO Kim stated the KOSPI excluding top five semiconductor stocks stands at just 2,787 points, describing the index's record highs as an "optical illusion" driven by semiconductor gains while broader market discount deepens.
KOSPI Excluding Semiconductors Stands at 2,787 Points
According to data compiled by VIP Asset Management, the KOSPI excluding five major semiconductor stocks stood at 2,787 points as of July 21. The firm stated this demonstrates the index's recent surge is "essentially an optical illusion created by semiconductors," indicating that the Korea discount has actually deepened even as the KOSPI continues its record-high trajectory.
586 Companies Trade Below 1x PBR as of July 21
The number of KOSPI-listed companies trading below 1x PBR reached 586 as of July 21, accounting for 73% of all listed companies. This figure increased compared to one year earlier, despite the KOSPI nearly doubling during the same period. VIP Asset Management noted that without resolving the undervaluation of stocks excluding semiconductors, a full recovery of the KOSPI remains difficult.
Inheritance Tax Calculation Uses Four-Month Average Stock Price
CEO Kim identified the inheritance and gift tax calculation method as the structural cause of undervaluation. Inheritance and gift taxes are calculated based on the average stock price over four months — two months before and after the reference date. Lower stock prices result in reduced tax burdens for controlling shareholders. Kim stated, "It's time to end the tragedy where news of a controlling shareholder's health deterioration or death becomes a catalyst for stock price increases."
Kim noted that most stock price suppression methods fall within the realm of management judgment rather than illegal activity. He cited dividend reductions, cash retention, treasury stock accumulation for friendly shareholding, dual listings, conservative earnings management around succession periods, and passive investor relations as examples. Kim stated, "Stock prices can be kept low through management judgment alone, not through illegal methods like market manipulation," adding that "most of these actions are not subject to punishment under capital markets law but fall within the scope of management judgment."
Proposed Legislation Sets 80% Net Asset Value Floor
VIP Asset Management advocated for legislation that changes the incentive structure itself rather than regulating individual actions. CEO Kim stated, "Regulating actions is like playing whack-a-mole," emphasizing that "eliminating the benefit gained from maintaining low stock prices is the most efficient solution."
The Stock Price Suppression Prevention Act (Partial Amendment to the Inheritance Tax and Gift Tax Act) would apply the valuation method used for unlisted stocks when controlling shareholders inherit or gift listed stocks trading below 80% of their statutory net asset value. The legislation would set 80% of net asset value as the valuation floor. Kim explained, "The 80% net asset value floor has already been applied to unlisted stocks for nearly 10 years," stating that "applying this to listed stocks would enable fair valuation while reducing institutional confusion." The bill applies only at the time of controlling shareholder inheritance or gift transfers and does not affect regular trading or general investors.
Bill Includes 20% Premium Tax Abolition and Stock Payment Allowance
The legislation also includes abolition of the 20% premium tax on controlling shareholders and permission for stock payment of inheritance taxes. VIP Asset Management explained these provisions apply uniformly to all controlling shareholders regardless of undervaluation status, with the intent of preventing tax avoidance through undervaluation while reducing succession burdens for companies that have legitimately grown enterprise value. The firm presented reduced stock price impact from "overhang" as an expected benefit, as heirs would have less need to sell large quantities of stock to raise tax funds.
CEO Kim stated, "Controlling shareholders and minority shareholders are people in the same boat, but the current system makes them row in opposite directions," describing the Stock Price Suppression Prevention Act as "legislation that ends this conflicting dream and makes everyone look in the same direction of enhancing corporate value."
Lawmaker Lee So-young of the Democratic Party, who introduced the bill, stated, "It is not reasonable for taxes paid to differ based on whether a company is listed on the capital market," adding that "when the government's tax reform plan is released at the end of the month, there will be significant interest from the market and media regarding which proposal better addresses the problem."
FAQ
What percentage of KOSPI companies trade below book value as of July 21?
586 KOSPI-listed companies, representing 73% of all listed firms, trade below 1x price-to-book ratio (PBR) as of July 21 according to VIP Asset Management data.
How does South Korea's inheritance tax structure affect stock prices?
Inheritance and gift taxes are calculated based on the average stock price over four months (two months before and after the reference date). Lower stock prices result in reduced tax burdens for controlling shareholders, creating incentives to maintain low valuations according to VIP Asset Management CEO Kim.
What valuation floor does the proposed Stock Price Suppression Prevention Act establish?
The proposed legislation would set 80% of net asset value as the minimum valuation floor when controlling shareholders inherit or gift listed stocks trading below that threshold, applying the same method already used for unlisted stocks for nearly 10 years.
