The government in need of a value-up

At this juncture, the government must start a value-up of itself before encouraging companies to value up.

AN HYO-SEONGThe author is a stock market news reporter of the JoongAng Ilbo. When bank stock prices soared earlier this year due to expectations for the value-up program pushed by the government, an asset management executive said it would be better to buy stocks of securities firms rather than stocks of banks. He preferred securities stocks over bank stocks because of government control. He claimed that too many bank activities are affected by government policies, such as limiting dividends due to controversy over making too much money from interests. He said that the securities industry is more attractive, as it is a step further away from the government’s attention.

As he said, government-controlled finance is shaking bank stocks. One word by Financial Supervisory Service (FSS) Director Lee Bok-hyun resulted in the loan interest rate going up while market interest rate went down, which eventually led to loan suspension. As the interest rate and total loans are swayed by the mouth of the FSS head, the risk for investors inevitably grows. Keen foreign investors sold bank stocks on a large scale last week.

This is not the first time that the visibility for investment is blurred by government involvement. A complete ban on short selling is a classic example. In November 2023, President Yoon Suk Yeol held an emergency meeting of the government and his party over the weekend and decided to completely ban short selling.

His grounds for the ban was the illegal short selling of foreign investment companies, but the majority of the market responded, “Could that be a reason to put a total ban on short selling without any notice on weekends?” The only party that benefited was secondary battery company investors who made money from the ban.

The same applies to the financial investment income tax. Confusion remains after the president suddenly announced the abolition of the income tax in January. As the majority opposition party opposes the abolishment of the tax, the government could be blamed for changing something that was already determined without any prior discussion. Naturally, Yoon neglects various issues such as benefits for long-term investment or the withholding tax. Investors have to make investment decisions without knowing the tax implication on their earnings.

The biggest prerequisite for a company’s value-up is a good manager. The market gives trust to managers who are good at running businesses and are capable of steadily increasing shareholder returns. The stock price of Starbucks soared after Brian Niccol, CEO of Chipotle Mexican Grill, was made the new CEO of Starbucks.

What about the Korean government — the manager of Korea? Aside from efficient capital allocation, Korea has lost the trust of the market. At this juncture, the government must start a value-up of itself before encouraging companies to value up.