[Deep Dive] Reignited Value-Up Program: Structural Causes of the Low-PBR Rally and Response Strategies

The Current State of the Value-Up Program Aimed at Resolving the Korea Discount

As of June 2026, the government's Corporate Value-Up program has firmly re-established itself as a core driving force in the domestic stock market. Overcoming the initial skepticism regarding its effectiveness raised during its introduction in 2024, the voluntary expansion of shareholder return rates and improvements in capital efficiency among listed companies have become visible in the data. This has led to an influx of strong buying interest, heavily concentrated on low Price-to-Book Ratio (PBR) stocks. According to statistics from the Korea Exchange, the average shareholder return rate of companies included in the 'Korea Value-Up Index' surpassed 30% as of the end of the 2025 fiscal year. Some leading companies have even announced aggressive return policies approaching 50%, significantly exceeding market expectations. This serves as a powerful signal that the fundamental constitution of the Korean capital market is undergoing a structural transformation, rather than merely experiencing a one-off thematic rally.

Three Structural Factors Driving the Low-PBR Rally

1. Institutionalization of Share Buybacks and Cancellations Enhancing Transparency

Historically in the Korean stock market, share buybacks were often utilized as defensive mechanisms for management control or as temporary stopgaps to boost stock prices. However, following the implementation of the Value-Up guidelines, a virtuous cycle has been established where free cash flow (FCF) directly translates into the enhancement of substantive shareholder value. In the first half of 2026, the volume of share cancellations by major companies listed on the KOSPI market surged by approximately 42% compared to the same period last year. The institutional pressure encouraging companies to cancel acquired shares within a specific timeframe, coupled with active shareholder engagement by institutional investors, ensures that the resulting increase in Earnings Per Share (EPS) from a reduced outstanding share count is immediately reflected in the stock price.

2. Secured Predictability in Dividend Policies and the Influx of Long-Term Capital

With the market-wide settlement of the 'confirm dividend amount first, set record date later' system, the chronic uncertainty traditionally associated with dividend investing has been largely resolved. In the past, the so-called 'blind dividend'—investing without knowing the exact payout—was heavily criticized. Now, investors can construct precise cash flow models based on the confirmed dividend amounts and the mid-to-long-term (3-5 year) shareholder return policies disclosed by companies. This groundbreaking improvement in predictability provides a compelling incentive for long-term holding by large institutional investors and foreign funds that prioritize stable dividend yields, ultimately lending downside rigidity that dampens overall market volatility.

3. Valuation Differentiation Driven by Concrete Tax Benefits and Incentives

Concrete tax benefits, including corporate tax reductions for exemplary companies that voluntarily participate in Value-Up disclosures and expand shareholder returns, alongside separate taxation on dividend income for investors, are translating directly into improved actual investment returns. As these policy incentives are priced into the market, a distinct valuation gap is emerging between companies actively participating in the program and those that are not. Market participants are now utilizing the mere act of disclosure as a key qualitative metric to evaluate a company's governance health and the management's willingness to communicate with shareholders. Conversely, non-participating companies are entering a penalty phase, facing disadvantages in the capital procurement market.

Moving Beyond Policy Momentum to Fundamentals: The Need for Selective Investment

The market has transitioned past the initial upward phase where the momentum of the Value-Up policy mechanically inflated the valuations of low-PBR stocks across the board. We have now entered a secondary phase where the market rigorously screens and selects companies that can prove actual fundamental improvements and superior capital allocation capabilities. At this juncture, the mere fact that a stock trades at a low book value is insufficient to guarantee sustained price appreciation. It is imperative to stringently distinguish between genuinely undervalued blue-chip stocks with the capacity for substantial shareholder returns and so-called 'value traps'—companies that hoard assets but lack cash-generating ability.

Investors must closely scrutinize a company's capacity for sustained increases in Return on Equity (ROE), the ratio of free cash flow generation relative to operating profit, and the expansion of the spread through rigorous Cost of Equity (COE) management. Most importantly, only those companies that execute rational and transparent capital allocation without infringing on the proportional interests of minority shareholders during governance reorganizations will survive as the ultimate beneficiaries of the Value-Up initiative. Heading into the second half of 2026, market capital is expected to compress even more sharply into 'execution-driven' companies that present clear roadmaps for value enhancement and validate them with concrete financial figures.