(Bloomberg) -- South Korea’s main stock benchmark recorded its best week since November 2022 amid renewed expectations for a regulatory push to raise corporate governance standards and improve shareholder returns.

The benchmark Kospi index is up 5.5% this week, with the rally reversing much of last month’s decline that had ranked it among the world’s worst performers. The gauge rose 2.9% on Friday, the most since the surge sparked by a surprise ban on short selling in November. 

Foreign investors scooped up $2.5 billion worth of Korean equities this week on a net basis, the highest since 2013. Financials contributed the most to the advance — a gauge of Kospi banks and insurers jumped 15% — as they’re expected to benefit the most from the government’s push to boost stock valuations.

Kia Corp. jumped nearly 30% this week as investors expect local carmakers, which trade at about half of their book value, to gain from the regulatory push. Holding firms were in the limelight due to their chronic undervaluation versus their net asset values. Lotte Corp. and LG Corp. rallied almost 25% for the week. 

South Korean officials plan to announce details of the ‘Value Up’ program later this month. The plan seeks to replicate Japan’s success in boosting stocks by pressing companies to enact corporate reforms. The move has added to earnings growth optimism on Korean companies, which prompted Citigroup Inc. to upgrade South Korea to overweight. 

“The government’s efforts to address the ‘Korea Discount’ via the Value Up program is an important catalyst that may drive additional upside,” Goldman Sachs Group Inc analysts including John Kwon and Timothy Moe wrote in a Jan. 31 report. The bank raised its 12-month target on Kospi to 2,850 from 2,800, implying a 9% gain from Friday’s close.  

The bid to end the long-time phenomenon known as “Korea Discount” — where local stocks have traded at steep discount to their overseas peers due to poor corporate governance and meager shareholder returns — got a renewed presidential push under the administration of Yoon Suk Yeol, who became the first South Korean leader since the retail stock investors became a key voting bloc. 

 

(Updates inflows data in third paragraph)

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