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The curious case of Korea’s preference stock discount

28 June 2024 |
Active ESG
A unique feature of the Korean stock market is the pervasive use of non-voting stocks, termed ‘preference shares’. They can trade at discounts to common stock of as much as 50%, or more. Jonathan Pines considers the causes of the phenomenon, what, in his opinion, the ‘right’ level of discount should be, and under what circumstances the team finds these instruments most attractive.
The curious case of Korea’s preference stock discount

Fast reading

  • The small price differentials at which stock classes with differing voting rights trade at on US stock markets shows that investors don’t place a high value on greater voting power even in a market where greater voting power might result in better treatment in the event of a takeover.
  • Korean preference shares are essentially non-voting common stock. Unlike in the US, minority stockholders – even in share classes with voting rights – enjoy no ‘tag along’ rights in the event of a takeover, implying the value of a vote should be even less than that which applies in the US.
  • Despite this, Korean preference shares trade at remarkably deep, persistent discounts to their voting counterparts. These instruments become particularly attractive under specific circumstances.

The curious case of Korea’s preference stock

For more on this topic, please read our previous coverage:

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The curious case of Korea’s preference stock discount

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