Small South Korean investors are trying to shake the country’s squeaky corporate landscape.
Amateur stock challengers across the country are aggregating on social media platform Kakaotalk and dedicated shareholder apps such as ACT, which has added over 110,000 users in the two years since its launch. Their purpose is to: shock South Korea’s $1.9 trillion stock market, which has been trading for many years in stock trading compared to regional competitors such as Japan and Taiwan.
“South Korea’s financial system lags behind global standards and companies need to take responsibility,” Younghee Won said. “Online platforms enable our anger to be translated into action.”
This wave of grassroots activism means that South Korean listed companies are now under pressure from all sides as politicians, regulators and foreign investment funds promote better governance. It may eventually force local companies to resolve the long-term “South Korea Discount” – Add fuel to one of the best performing stock markets in the world so far this year.
It also makes small investors a surprising political force. Lee Jae-Myung, a left-leaning politician who won the country’s presidential election last week, tried to position himself as a shareholder champion, Promising To improve corporate governance standards, curb stock manipulation and set the KOSPI index to 5,000, almost 80% higher than the current level.
kospiEntering a bull marketLee was about 1.7% higher in early Asian trades on Monday after his election victory.
The market is getting boosted from foreign capital loading on stocks and Wall Street’s optimistic interest. Strategists at Goldman Sachs Group Inc. noted over the weekend that they are upgrading South Korean stocks to overweight, suggesting an increased likelihood of capital market reform.
Growing influence
According to Goldman Sachs, South Korea’s retail investors now account for 30% of the total. The boom in stock trading caused millions of new account openings during the 19th pandemic, exacerbating the rise of online communities where they can learn about stock procurement and incubation plans.
According to data from the AJU Corporate Management Institute, shareholders of Korean companies submitted 168 proposals at the latest round of annual shareholder meetings, more than 80% of the proposals made in 2021. These include 78 direct management recommendations requiring the appointment or removal of senior executives.
“Minority shareholders are looking for a more active role,” said AJU Deputy Director Nameun Kim. “If the focus before was just on rewards, now they want their preferred directors to be on the board so that they can participate in management decisions.”
So far, the success of small investors is in small companies with a market value of no more than $1 billion. In the latest round of annual shareholder meetings in March, medical company Oscotec Inc. canceled plans to reappoint its CEO after investors withdraw, while biotech companies Amicogen Inc and Textile Company di di dong Il Corp. have appointed new auditors after small investors push.
Oscotec, Amicogen and Di Dong Il Corp. did not respond to requests for comment.
Not surprisingly, many companies will try their best to resist these mini activists, or just ignore them. Kim, a school teacher who asked to be identified only by his last name, was frustrated with a Korean company that he owned its shares so much that he sent 400 letters to investors he found in the company’s shareholder registry asking them to join the Kakaotalk Group to discuss possible actions. More than 120 of them have signed up.
“I had to print and mail it by hand,” he said. “I did it all myself outside of work hours while keeping my job full-time. The activism of shareholders is exhausted, frustrating and candidly overwhelming.”
The company did not respond to Kim’s numerous demands on their business performance, and he eventually sold most of his shares. He holds some shares out of his obligations to fellow activists.
The rise of small Korean investors and Meme Strategy Fanatic In the United States, anonymous users on Reddit’s Wallstreetbets forum united to increase prices for GameStop Corp. and other stocks. Korean platforms such as ACT and Hey Holder require users to confirm that they actually hold stock before joining any dedicated group, meaning those weighing the discussion already have skins in the game.
Sangmok Lee, CEO of ACT, said users on the platform are often more like “fans” of the companies they own. “Fans are engaged in shareholder activism out of love for the company, just as parents use discipline in a way that loves them,” Lee said.
Powerful allies
South Korean stock market has been cheaper than close competitors in Japan and Taiwan for many years, and indicators such as price ratios are popular measures of stock value compared to the value of a company’s assets. There is no reason for the “Korean Discount”, but analysts point out that worrying about how companies invest, a series of puzzling cross-equity and the interests of company executives are not always consistent with shareholders.
Small investors themselves are not enough to turn things around, but they have some strong allies. Local radical funding like Align Partners Capital Management Inc. is rising, adding professional savvy to the efforts of amateur investors. Foreign funds are also joining the bill, expanding their operations in South Korea, hoping that the market is finally ready to make a turn.
“We are optimistic that the presidential election will bring greater substantial changes in South Korea,” said Seth Fischer, founder and chief investment officer of radical fund Oasis Management in a recentBloomberg TVinterview. He was cautious and said that there was still a “long way to go” in reforming South Korea’s corporate sector.
But the biggest source of support for small investors is likely to come from the highest. Lee Jae-Myung promised to protect investors’ interests, promote transparency, and prompt the company to appoint directors representing minority shareholders in Facebook posts before winning the election.
His goal? Turn “Korean discount” into “Korean premium”.
This story was originally fortune.com
