Gap Trade Opportunities in Korean Prefs Vs Common Share Pairs in 1Q 2025

• In this insight, we discuss numerous gap trade opportunities involving Korean preferred and common shares in 1Q 2025.

• Among the 27 major pair trades (prefs vs. common shares), 20 of the pref stocks outperformed their common shares counterparts in 2024.

• The 27 Korean preferred stocks' average prices declined by 1% from end of 2023 to end of 2024 (excluding dividends), outperforming their common counterparts which were down on average 3.7%.

In 2024, the major Korean preferred stocks sharply outperformed KOSPI and their common counterparts as well. This outperformance of the preferred stocks was a reverse of what happened in 2023 when the major common shares outperformed their preferred shares counterparts.

The outperformance of the major Korean preferred shares is an indication of the search for greater value and alpha among both global and domestic investors amid weak domestic stock market. As a result of the outperformance of many preferred shares in Korea in 2024, the preferred/common share price ratio among the 27 major Korean stocks increased from 61.9% at the end of 2023 to 64.9% at end of 2024.

On a longer timeframe (3-5 years), we believe this discount could narrow further to the 20-25% range (from current 35% discount), which provides additional opportunities for the Korean preferred shares to further make gains versus the common counterparts.