South Korean President Lee Jae Myung said on Thursday that domestic pension funds hold too few local stocks compared to their overseas investments, adding that they are missing out on substantial gains in the Korean stock market.
At a press conference marking his 100th day in office, held just a day after the country’s benchmark stock index climbed to a record high, Lee pledged to restore investor confidence to resolve Korea Discount, or persistent low valuation on Korean stocks.
“I asked why domestic stocks make up a low portion of Korean pension funds’ assets, while they are actively buying foreign stocks,” Lee said in the lively televised press conference.
“It is true that the domestic stock market is significantly undervalued due to a lack of investor confidence. But I find their explanations unconvincing,” he added.
Lee pushed back against claims that pension funds would put severe downward pressure on domestic equities once their expenditures begin to exceed new contributions in decades due to low birth rates.
“It sounds plausible, but if the (Korean) stock market is higher in 30 years and we don’t hold shares, wouldn’t it be a missed opportunity?”
TAX ON STOCK INVESTMENTS
During his presidential campaign, Lee vowed to implement stock market-friendly measures to drive the Kospi to 5,000 points, a milestone that has never been achieved in the history of South Korean stock market.
As part of those efforts, he signaled a more flexible stance on equity taxes, particularly by considering rescinding the government plans to tighten tax rules for imposing higher taxes on large shareholders.
In July, the government and ruling Democratic Party agreed to lower the capital gains threshold for large shareholders to holdings of at least 1 billion won ($720 million) in a single listed company from 5 billion won, reinstating the 2022 standard.
Those designated as the largest shareholders in a listed company are subject to the tax rate of 22-27.5%, including local income tax – the highest rate applied among shareholders.
“If the threshold becomes an obstacle to market revitalization, there is no need to stick to it,” Lee told reporters.
In 2024, domestic stocks outperformed other asset classes for Korean pension funds, including the National Pension Service (NPS) and the Government Employees Pension Service — South Korea’s two largest pension schemes.
With 1,300 trillion won ($930 million) in asses under management, the NPS often holds the swing vote in proxy battles among domestic companies, raising concerns over its growing influence.
By Hyung-Kyu Kim and Sang-Won Jeong
khk@hankyung.com
Yeonhee Kim edited this article.
