Solving the Korea Discount
Part I. The Core Issue: Why Are Korean Stocks Undervalued?
The decades-long 'Korea Discount' is a structural problem where stock prices are valued lower than their intrinsic corporate fundamentals. The chart below clearly illustrates the valuation gap with major global markets.
Cause #1: Poor Corporate Governance
Self-serving actions by controlling shareholders, often termed 'owner risk', erode minority shareholder trust and raise concerns that the fruits of corporate growth are not fairly distributed. This is the root cause for investors demanding a high-risk premium.
Cause #2: Low Shareholder Returns
Passive shareholder return policies, such as dividends and share buybacks that fall far short of global standards, diminish investment appeal. It signals that surplus cash may be used for purposes other than enhancing shareholder value, deepening the discount.
Part II. The Key to a Solution: The Power of Commercial Act Reform
The recently pursued revision of the Commercial Act directly targets the governance issues at the heart of the Korea Discount. It's a critical measure to restore fundamental market trust by legally strengthening shareholder protection. Click the cards below to explore the key changes.
Expanded Fiduciary Duty of Directors
The director's duty, previously to the 'company', is expanded to include the 'proportional interests of shareholders'. This provides a strong basis for holding directors legally accountable for decisions that only benefit controlling shareholders.
Expanded '3% Rule'
The rule limiting the voting rights of the largest shareholder to 3% when appointing audit committee members will now also apply to the appointment of outside directors, substantially strengthening the committee's independence.
Institutionalized E-Voting
Allowing online voting dramatically improves participation in general meetings for minority and foreign investors by removing time and physical constraints.
Strengthened Appraisal Rights
Granting appraisal rights to shareholders who oppose a spin-off becomes an effective tool to prevent the erosion of parent company shareholder value from the listing of a valuable subsidiary.
Part III. The Ripple Effect: Scenarios for KOSPI 10,000
If the Commercial Act reform is successfully implemented, how will the market change? The chart below simulates the future path of the KOSPI under three scenarios based on the intensity of reform implementation. Click the buttons to compare each scenario.
How Will Individual Company Values Be Affected?
Reduced governance risk lowers a company's cost of capital (WACC), directly boosting its intrinsic value. Select a major company below to see its value change before and after the reform.
Part IV. The Guru's View: A Virtual Roundtable of Global Investors
If legendary investors were to analyze the current Korean market, what would they conclude? Click each card to explore a virtual analysis and strategy based on their investment philosophies.
