After years of frustration with South Korea’s underperforming stock market, investors are growing more optimistic that the new president’s push for shareholder-friendly policies will finally deliver stronger returns.
Global money managers, including Aberdeen Investments, Pictet Wealth Management, and Franklin Templeton, have recently added positions or upgraded their outlook on local stocks. They are encouraged by newly-elected Lee Jae-myung’s vows to boost corporate governance and nearly double the market’s return, after months of political chaos in the nation triggered by his predecessor’s short-lived martial law imposition.
Foreigners are returning to the stock market, helping to push the benchmark Kospi Index into a bull market on Lee’s first day in office. The early euphoria suggests investors are confident that Lee will accelerate efforts to boost shareholder returns — reminiscent of a similar drive that unleashed a stock rally in Japan — and succeed in the passage of a commercial law revision aimed at improving corporate governance.
“We are starting to see early signs of change,” said Pruksa Iamthongthong, deputy head of APAC equities at Aberdeen Investments, whose $1.2 billion Asian ex-Japan fund turned overweight on Korean stocks in May. “We believe that such a collective effort on the part of the government and domestic companies will go a long way in boosting trust in Korea’s capital markets and creating a culture of a greater heed to shareholder value.”
Agitated investors
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Korea’s economy is dominated by family-controlled conglomerates, known as chaebols, which have come under criticism for failing to protect the rights of minority shareholders. That’s resulted in investors often pricing local stocks below their book value and lower than overseas rivals, a phenomenon known as the “Korea discount.”
Shareholders are getting increasingly agitated, with activism campaigns targeting companies rising by sevenfold between 2020 and 2024, according to Bloomberg Intelligence.
“That link between what a company earns and what minority shareholders get back was broken,” said Jon Jhun, managing director at MY.Alpha Management HK Advisors in Hong Kong. It’s “about to be fixed by the Democratic Party and their legislation.”
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One of Lee’s early priorities is to root out rubber-stamping directors by revising the commercial code to broaden board fiduciary duty to shareholders — and not just to the company itself. The ruling party’s officials are proposing new revisions, which include enhancing the nomination process for audit committee members and adopting electronic voting systems.
Family control
Such revisions largely target chaebol conglomerates and their founding families, who wield outsized influence in the economy and at listed companies’ management and boards.
The new political leadership will likely look to further galvanize a wave of changes that were put in motion more than a year ago, in a program called the “Corporate Value-up.” Modeled after Japan’s “name and shame” initiatives, the program urges companies to self-start a range of measures to boost shareholder returns.
A total of 160 companies have unveiled Value-up plans, though many lacked details, said John Cho, Korea equity portfolio manager at JPMorgan Asset Management.
“We anticipate that future iterations of medium-term planning should lead to more refined Value Up plans,” Cho said. “Korea is only in its second year of the Value Up plan, compared to Japan’s decade-long governance journey.”
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Signs are emerging that companies are taking proactive measures. Kospi members’ total dividend payouts rose 12% in 2024 to 44 trillion won ($32.4 billion), according to Korea Exchange’s data. Share buybacks more than doubled to 18.7 trillion won in 2024.
“These chaebols are actually changing their plans due to the pressure from the government and from the market,” said Yiping Liao, a portfolio manager at Franklin Templeton Emerging Markets Equity, which has been selectively adding Korean stocks before the election.
Earlier this year, arms maker Hanwha Aerospace Co. also cut the size of a share offering after backlash from investors who were concerned about value dilution.
Even with the legislature largely in his corner, Lee is not taking on his agenda without challenges. Some investors and activists have called for revising taxes on inheritance and dividends to help lift stocks, but that would require broader public support.
The new president will also have to juggle a host of issues that darken the country’s outlook, such as the prospect of higher tariffs from the US, an economy in contraction, and a deep-seated polarization.
Still, a corporate culture shift is underway, said Jonathan Pines, lead portfolio manager and head of Asia ex Japan at Federated Hermes. “We are significantly overweight Korean equities because of low valuations, and in the hope that the landscape continues to improve,” he said.
