Daily Commentary

MarketMinder’s View: Please note MarketMinder doesn’t make individual security recommendations, and the companies here are coincident to a broader theme we wish to highlight. South Korean markets have been the world’s top performers year to date (per FactSet), yet Korean initial public offering (IPO) activity has lagged relative to past years. According to this piece, the drought is partly a side effect of earlier corporate governance reforms. For context, in 2024, the Korean government announced its “Corporate Value-Up Program,” which aimed to improve businesses’ capital efficiency—an effort to reduce the power of the chaebols (conglomerates whose structure favors the founding families’ control over outside and minority shareholders). One of those changes: “Parent-subsidiary listings, which refer to a unit pursuing its own listing, will ‘be prohibited as a general principle,’ Korea Exchange CEO Jeong Eun-bo told CNBC on June 11. They can be seen as diluting the parent company’s value at the expense of minority shareholders while letting controlling families retain control of the newly listed subsidiary. Measured by the value of cross-held shares between listed parent companies and their subsidiaries, these accounted for around 11% of South Korea’s total market cap as of last year, according to the Financial Services Commission, compared with about 4% in Japan and 3% in Taiwan.” So mega-conglomerates can't just spin off business units as a new “company” that remains effectively owned and controlled by the parent. To fill the IPO void, regulators plan to delist a few hundred “zombie firms” to create space for actual new offerings to hit the market. Time will tell if this unclogs the venture capital pipes. But quirks like this show why it hasn’t been quick and easy for South Korea to complete the reforms necessary to graduate from Emerging Market to Developed despite the country having a modern, high-tech economy. For more, see our 2024 commentary, “Can Korea Value Up?”

MarketMinder’s View: Don’t let the title here excite you—the “effort” here is procedural. Also, please note MarketMinder is nonpartisan and prefers no political party or politician over another. Instead, we are highlighting this development as an example of politicians saying lots of words without enacting actual change. Two Congresspeople have introduced the Bipartisan Social Security Commission Act, legislation that “… would not directly change benefits, payroll taxes or retirement ages. Instead, it would establish a 13-member bipartisan commission tasked with studying the program's finances and recommending solutions. Under the proposal, eight commissioners would be appointed by congressional leadership, four would be selected by the leaders of the House Ways and Means and Senate Finance committees, and the president would appoint the chair. At least two members would have to be outside experts rather than elected officials. The commission would have one year to develop recommendations.” It sounds all very plan to have a plan, though it is noteworthy that Congress used this same general approach in 1983, the last time they had to patch Social Security funding. We would temper expectations for near-term action, though, even if this does pass and the committee forms. The latest projections see Social Security’s shortfall arriving in 2032. Last we checked, 2032 is six years from now—an eternity in politics. While the prolonged griping might rankle, it does give markets oodles of time to pre-price whatever tax hikes, retirement age or benefits tweaks this (or another) committee comes up with. For more, see our commentary, “The Politics and Practicalities of the Social Security Trust Fund.”

MarketMinder’s View: Short and sweet, this piece fleshes out the headline with a chart showing 70 verified Strait of Hormuz crossings, per ship tracking firm Kpler, the highest since the war in Iran broke out—but still short of prior norms (around 130 per day). Time will tell if this is a trend, but note markets didn’t wait for clarity—they started recovering in late March, when the Strait was closed, simply prepricing the high likelihood that things would go better than feared.