[Editorial] From discount to premium

A market that leaps on reform rhetoric only to falter a day later is not yet a premium market. At Wednesday’s meeting on capital market stability and normalization, President Lee Jae Myung tried to shift the narrative from the familiar “Korea discount” to the promise of a “Korea premium,” a phrase that has long captured both ambition and frustration in Korean finance.

Investors responded with an immediate, if somewhat reflexive, surge. The Kospi climbed more than 5 percent, driven by semiconductor shares and renewed appetite for structural change. The pullback on Thursday, however, showed how fragile confidence remains when global conditions are unsettled and the domestic foundation is incomplete.

The Lee administration is right to confront the structural weaknesses that have weighed on Korean equities for decades. Weak governance, repeated manipulation scandals and policy unpredictability are not occasional risks but embedded concerns for many global investors.

Plans to ban overlapping listings between parent firms and subsidiaries strike at one of the clearest distortions in the market. Such structures account for nearly 20 percent of the Kospi market value, making the double-counting of assets a persistent source of undervaluation.

Proposed revisions to the Commercial Code go further. Broader fiduciary duties to shareholders, cumulative voting and mandatory cancellation of treasury shares are intended to bring corporate practice closer to global standards. A two-tier restructuring of the Kosdaq market could provide clarity needed to attract long-term capital.

Reform, however, can produce new distortions if it expands shareholder rights while narrowing the space for managerial judgment. Korean executives operate in a legal climate where accusations of breach of duty are frequent and investigations often prolonged even when no violation is found. When the personal cost of a failed decision means years of legal difficulties, the predictable response is caution. Investment in research, mergers or restructuring is delayed, and risk-taking becomes rare.

A premium market requires more than rules that punish misconduct. It also requires a safe harbor for decisions made in good faith. Clarifying business judgment principles would not weaken investor protection. It would allow responsible risk-taking.

Recent volatility also reflects a surge in speculative trading. Financial regulators report that daily turnover in leveraged and inverse exchange-traded products has reached 5.6 trillion won ($3.7 billion) this year, about 3 1/2 times last year’s level.

Fear of missing out has pushed funds into tech-heavy Kosdaq products even before underperforming companies have been removed from the exchange. Such turbulence reinforces the perception policymakers hope to change, that Korean equities remain a short-term trade rather than a stable destination for long-term capital.

External headwinds leave little margin for error. The US Federal Reserve has held its policy rate steady for a second time while warning that higher oil prices linked to Middle East tensions could keep inflation elevated.

With the interest rate gap already wide, the Bank of Korea has little room to move its 2.5 percent rate. The won has weakened past 1,500 per dollar, growth remains near 1 percent and household debt is approaching 2,000 trillion won. A rally that runs ahead of these fundamentals cannot be secured by regulation alone.

The government can remove obstacles, from opaque listings to uneven governance, but it cannot legislate performance. Companies such as Samsung Electronics can sustain dividends and buybacks only because global earnings make them possible, not because policy encourages them.

Wednesday’s surge and Thursday’s retreat illustrate the distance the market has yet to traverse. A true premium market is not one that rises on reform news, but one that holds steady when headlines turn uncertain, because the real economy and the financial system are advancing together.