South Korean stocks have been left out of the global market rally this year, but the market is back on investors' radars following new government policies to address the age-old issue of Korea Inc: the lack of dividends.
The benchmark KOSPI index has risen a meager 2.9 percent year to date, underperforming the 9.6 percent gain in global stocks, according to the MSCI World index.
In late-July, the Korean government announced that as part of a $40 billion economic stimulus package it would introduce a tax on companies with high cash reserves to encourage greater shareholder returns, increased capital investment and higher wages.
"A low dividend payout and the lack of focus on shareholders' returns are part of the reasons for Korea's much lower valuations compared to the region," Goldman strategists' led by Richard Tang wrote in a recent note.
Heavyweights including Samsung Electronics, for example, have been reluctant to return more of its near $60 billion cash pile to shareholders, despite growing calls from investors.
"In our view, a hike in dividend payout may be a catalyst for re-rating the market," Tang said. Re-rating on a market means investors are willing to pay a higher price for shares.
Details of the dividend policies will be announced on August 6 and thereafter voted on in Congress, according to Goldman Sachs.
The KOSPI's dividend payout ratio of 12 percent and dividend yield of 1.2 percent are the lowest in the region. By comparison, Taiwan and Hong Kong offer a dividend yield of 2.9 percent and 3.9 percent, respectively.
CIMB Securities has also turned upbeat on the prospects for what it calls the "forgotten market."