Two out of five Korean stocks underperform book value with P/B below 1.0

[Source: Korea Exchange]

With the main indices losing nearly 20 percent this year, as much as 40 percent of Korean listed companies have come to underperform their book value.

As of Monday, a total of 853 companies trading on the main Kospi and the secondary Kosdaq showed price to-book ratio P/B ratio of below 1.0x as of June 17, 35 percent greater compared with December.

The P/B ratio is an indicator whether a stock is overvalued or undervalued, with the figure below 1.0x meaning that a company’s current market value is below its book value, or undervalued, and vice versa for above 1.0x.

Undervalued stocks halved last year from 1,300 in May 2020 when massive foreign selling from the virus outbreak had devastated the Korean market. But the number surged in line with the slide in Korean stocks.

Even large-cap stocks are now poorly valued.

LG Chem’s P/B ratio fell to 0.97x as of June 17 from 1.6x late last year, CJ CheilJedang to 0.95x from 1.2x, Kumho Petrochemical to 0.83x from 1.77x, and Meritz Financial Group to 0.93x from 1.76x.

The bottom however is yet to come.

Kospi-listed firms’ P/R ratio averaged at 0.96x as of last Friday. The average PBR came at 0.88x in October 2018 when the trade row between the U.S. and China spilled over the financial market, and 0.81x in October 2008 with the Wall Street meltdown. In March 2020, the figure stood at 0.64x amid the virus pandemic.

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