South Korea Bans Dual Listings, Fueling 5% KOSPI Climb

KOSPI Climbs Over 5% as Seoul Outlaws Dual Listings

South Korea's stock market climbed after the government announced it will prohibit companies from spinning off and separately listing their subsidiaries. The benchmark Kospi index jumped more than 5% intraday on Wednesday after the Financial Services Commission confirmed the new policy, triggering a circuit breaker that temporarily halted program trading on Kospi 200 futures.

The move is a cornerstone of a broader government campaign to address the "Korea discount" and improve corporate governance. Shares of major holding companies, which stand to benefit from the reform, gained sharply. CJ Group and SK Inc. were among the notable gainers, building on momentum from earlier in the week when local media first reported on the impending policy change.

New Rule Targets Valuation Discount Rooted in Spin-Offs

The ban strikes at the heart of "dual listings," a practice long criticized for diluting the value of parent companies and harming minority shareholders. In these spin-offs, a listed parent carves out a valuable business unit—often the most attractive growth engine—and takes it public as a separate entity. This has been a key source of the chronic undervaluation of Korean equities.

The 2022 IPO of LG Energy Solution serves as a prime example. After its parent, LG Chem, spun off the high-growth battery business, LG Chem’s shares fell approximately 9% within a month and stagnated. The new rules, enforced through a strict review process, are expected to disrupt the IPO plans of major conglomerates, or chaebols, including SK Group, HD Hyundai, and Hanwha Group.

JPMorgan Sees 41% Upside Conditional on Further Reform

While the ban on dual listings provides a significant boost to investor confidence, analysts caution that sustained market gains depend on the successful implementation of deeper governance reforms. Despite its recent gains, the Kospi trades at a price-to-book ratio of about 1.7, still below Japan's Topix index at 1.9 and China's CSI 300 at 1.8. This valuation gap persists even as analysts forecast that earnings for Kospi-listed companies will more than double in the next 12 months, far outpacing the 12% growth expected for Japanese firms.

Investors are now watching for tangible improvements in shareholder returns. According to Indrani De, Head of Global Investment Research at FTSE Russell, investors want to see policy changes translate into tangible improvements in return on equity (ROE). Others point to the need for inheritance tax reform, arguing the current system incentivizes controlling families to suppress stock prices to reduce their tax burden upon succession. JPMorgan has set a target of 7,500 for the Kospi, implying over 41% upside, but noted that such a re-rating is contingent on "further substantial progress" in corporate governance.