Seoul Searching: Finding Value in Korea
Anindita Nag
AnalystAnindita joined OP in 2023 as an analyst contributing to the overall investment selection, with a primary focus on emerging markets. Prior to OP, she worked as an investment analyst within the 4Factor Emerging Markets equity team at Ninety One. Anindita holds a MA (Cantab.) in Economics from the University of Cambridge and an MSc in Finance and Economics from the London School of Economics and Political Science (LSE), and is a CFA Charterholder.
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Beyond Tokyo, Across the Sea
For over a decade, Japan had been the quintessential global value play: a developed market packed with world-class companies trading at rock-bottom valuations. In the past few years, however, its story has rapidly evolved. Corporate governance reforms had only tepidly borne fruit until 2022 – when renewed pressure from the Tokyo Stock Exchange gave them real impetus and finally set the stage for a bull run. The TOPIX has since surged to a 35-year peak; while pockets of opportunity remain, alas, Japan is the bargain basement of global markets no more.
Just across from the Sea of Japan, however, lies a strikingly similar and arguably more compelling opportunity: South Korea. Long twinned with Japan as a governance laggard, Korea too has suffered from inefficient capital management, net-cash balance sheets, and low returns on equity. But while Japan’s reforms are now well-entrenched and largely priced in, Korea’s journey is only just beginning. Today the country sits at the point where improving governance, rising shareholder pressure, and political influence are starting to converge: the same stage Japan reached a decade ago. Valuations, however, remain near rock bottom.
The Weight of History
Sceptics may say the “Korea discount” is hardly new – weak corporate governance and poor capital efficiency have long kept Korean valuations trading behind global peers. But less widely appreciated perhaps are the deeper structural factors that have kept governance so poor for so long.
South Korea’s socioeconomic history has had a profound impact on its corporate governance practices. In the post-war reconstruction era, the Korean government channelled subsidies, incentives, and cheap loans into favoured sectors as tools of rapid industrialisation. This gave rise to the “chaebols” – family-controlled conglomerates such as Samsung, Hyundai and LG – which did spearhead Korea’s economic transformation, but at a cost. Protected by strict limits on foreign ownership at the time, these groups were able to expand into sprawling empires without ceding power to outside shareholders. Tax policies compounded the problem: dividend taxes approaching 50%[1] discouraged payouts, while inheritance levies of up to 60%[2] incentivised suppressing valuations during succession. Add to these the weak minority protections in company law – until recently, Korean directors had no legal fiduciary duty to shareholders – and the result was a corporate landscape dominated by unwieldy conglomerates with opaque cross-shareholdings, hoarded cash, and vast treasuries of idle shares. A handful of families with outsized political power reaped most of the benefits of industrial value creation while minority shareholders were sidelined – and valuations persistently discounted.
A Decade of Standing Still
Few numbers illustrate the “Korea discount” more starkly than Korea’s performance over the past decade. Between 2015 and 2025, while the S&P500 and TOPIX rose 184% and 98% respectively, the KOSPI managed only 25%. Over that same period, Korean equities’ average P/B ratio was barely one-third of developed market averages (or about two-thirds of the broader emerging markets average) – and by the end of 2024, over 70% of KOSPI-listed stocks traded below book value. The paradox is striking: in the last decade Korea has grown into one of the world’s most advanced economies – home to global leaders in semiconductors, autos, batteries and beyond – yet its stock market continues to trade at levels implying permanent stagnation.
Is the Tide Turning?
After many false starts under previous presidents, real reforms finally seem to be afoot, however.
In February 2024, the Korean government took a page out of Japan’s Abenomics playbook and unveiled an ambitious “Corporate Value-Up Program” under President Yoon Suk Yeol. Much like Shinzo Abe’s structural reform agenda a decade earlier, the aim was to lift equity valuations by addressing Korea’s chronic governance issues. Although early momentum was somewhat derailed by Yoon’s subsequent martial law saga and impeachment, it has returned with vigour after new President Lee Jae-myung was elected in June 2025. Lee had not only made corporate governance reform and the stock market pillars of his campaign, but has gone so far as to pledge a KOSPI at 5,000 during his term.
Legislative Teeth
There is reason to believe the ingredients for success are significantly stronger this time. Domestic pressure is mounting as pandemic savings have increasingly flowed into equities, meaning retail investors now account for over 60% of market trading[3]. Shareholder activism is also on the rise – only 10 companies faced activist demands in 2020; by 2023, that number had climbed to 77. In addition, there is rare bipartisan political alignment that reform is not only necessary but urgent – spurred partly by the growing constituency of retail investors, and partly by “Japan envy,” as Seoul’s policymakers are determined not to be left behind.
Most importantly, however, this is the first time reform agendas have moved beyond voluntary guidelines. A landmark step came in July 2025, when the Commercial Act was amended to impose an explicit fiduciary duty on directors to consider the interests of all shareholders. Building on this, the government is also pressing ahead with proposals to mandate the cancellation of treasury shares within a year of acquisition, despite fierce resistance from the chaebols.
Taken together, these measures mark a decisive shift: governance reform in Korea finally appears to be moving from rhetoric to reality. With Lee’s Democratic Party controlling the legislature, this government appears to have both the will and the political muscle to deliver meaningful reform for the first time.
Not All Boats Will Rise
It would be unfair to say the market has ignored the magnitude of Value Up (2.0). Since Lee’s election, the KOSPI has broken above 3,200 for the first time since 2021, making Korea one of the best-performing markets globally this year. Foreign investors – long sceptical and underweight – are returning, recognising that even modest progress on governance could drive a meaningful re-rating. Crucially, Korea does not need U.S. standards of governance to unlock substantial upside: a move to just emerging-market valuation averages would put the KOSPI near 4,000, while convergence with Japan’s multiples would indeed point towards Lee’s aspirational “KOSPI 5,000.”
Nonetheless, investors would be wise not to mistake early exuberance for systemic change. Governance reforms are gathering momentum – but the process of reform will be uneven, contested, and measured in years rather than months. More importantly, the Value-Up programme will not be a tide that lifts all boats. Many companies will move only reluctantly, while others may resist altogether. As it was in Japan, the real challenge for investors will be to separate those firms genuinely committing to better capital discipline – through higher payouts, treasury share cancellations, or clearer governance structures – from those just content to preserve the status quo.
Stock Pickers’ Paradise
At Oldfield Partners today we see Korea much as we once saw Japan: still undervalued and under-researched, but ripe for change. With reforms advancing but far from universal, careful selection is paramount. Our philosophy — patient, bottom-up investing with a disciplined focus on intrinsic value — is well suited to this moment. It allows us to identify and hold some of Korea’s truly leading franchises, from high-growth semiconductors to more traditional industrials and defensives, at valuations that are still at a fraction of their long-term worth.
A Gold Rush, and the Picks and Shovels
A good example of the case in point is a recent investment we made in SK Square, a holding company that derives nearly 90% of its value from the better-known SK Hynix. In today’s AI “gold rush,” high-bandwidth memory is the essential pick and shovel and Hynix is the leading global supplier. Yet, when we invested, Hynix itself was trading at barely 6× earnings, overlooked not for its technology, but for where it is listed. SK Square, meanwhile, was trading at a staggering 60% discount further to its NAV. This meant we were effectively able to gain exposure to one of the most critical growth businesses in the world at less than 3× earnings.
For us, this is a textbook Oldfield Partners investment: a solid business, temporarily unloved because it was misunderstood, but offering both meaningful upside and a wide margin of safety. More than that, it captures what makes Korea such fertile ground today — companies at the heart of industries that power the global economy, but still priced for failure rather than potential.
Since our investment, SK Square’s discount has already narrowed from 60% to around 50%, and it has outpaced even Hynix itself. With management continuing to divest non-core assets and tightening governance, we believe the gap has further to close and we remain invested with conviction.
Little Hinges, Big Doors
Ultimately, Korea today offers what we believe to be one of the most compelling environments for contrarian, long-term value investors. We have significant weightings in Korea across all strategies – a meaningful stance in concentrated portfolios of 20–30 stocks, and a genuine expression of conviction. Valuations remain low, yet shareholder pressure, political will, and governance reform are now converging in a way they never have before. That alignment sets the stage for even modest incremental change to drive a substantial market re-rating.
As discussed, however, we expect progress will not be uniform. Just as in Japan, many companies will resist change, and the task for investors will be to distinguish genuine reformers from those content to preserve the status quo. Korea today houses both world-class businesses hiding in plain sight and value traps that may never change – the difference lies in careful, disciplined selection. By applying our philosophy – patient, bottom-up investing, with a clear focus on intrinsic value – to Korea at this critical juncture, we aim to identify the former, avoid the latter, and hold high-conviction positions through the inevitable noise. If we succeed, we believe we can not only participate in the country’s re-rating but also unlock meaningful upside.
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