[THE INVESTOR] Korea’s economic recovery is being delayed as local companies are fast losing vitality, a study conducted by LG Economic Research Institute showed.

Korea’s equity market that is in the doldrums reflects the downtick in business activities here, Lee Han-deuk, senior researcher at the think tank said in his report published on June 20. 

The study notes that the compound annual growth rate of Korean firms’ market capitalization slowed to 3.2 percent between 2011 and 2015, compared to 28.4 percent during five years between 2000 and 2005.

Korea’s stock market accounts for 1.91 percent of the global equity market in terms of market capitalization as of May this year, down 0.3 percentage points from the figure in 2012.

Lee also pointed out that the country’s leading companies -- with market cap ranked in top 25 percent of all listed firms -- suffer a deeper stagnation in growth.

Their outstanding market cap rose 5.6 percent last year, compared to the figure in 2011, lagging far behind that of 11. 4 percent in the US and 21.4 percent in Japan.

The listed companies’ slow growth of market cap is interlocked with their falling profitability, Lee said.

“There’s a possibility that economic recovery can be delayed if companies with low growth and profitability stay in the market as it can cause a misallocation of resources that hampers start-ups’ growth,” Lee said.

By Park Han-na (hnpark@heraldcorp.com)