From Samsung and LG to Hyundai and K-pop, South Korean products are globally famous, says Steven Frazer in Shares. Yet the nation’s world-beating companies haven’t made for a successful stockmarket. The local Kospi index has lagged the global average for much of the last 15 years, and the resulting “Korea discount” has proved stubbornly resistant to attempts to close it.
“South Korea has for years been the cheapest equity market in Asia, and even the world,” says Will Lam of Invesco. Korean shares have gained less than 2% since the start of the year, a poor showing given the AI chip boom plays to the country’s strengths. Politicians in Seoul have been looking enviously at Japan, where the Topix has surged almost 16% since the start of the year.
Falling behind Japan
Both Korea and Japan host “conglomerate businesses”, often family-run, with “inefficient balance sheets”, poor returns on equity and stingy dividends, says Alison Savas of Antipodes Partners in Wealth Briefing Asia. Elaborate networks of cross-shareholdings (when companies own shares in each other) “can resemble a Jackson Pollock”.
The difference? Japan has spent the last decade slowly reforming its corporations, prodding them to act more in the interests of ordinary shareholders. That ultimately helped foster the “phenomenal run” in Tokyo over the past year. Korea wants to play catchup, but it has a long way to go – 70% of Kospi constituents are priced at less than one-times book value, a sign that management is doing a poor job at putting assets to work.
In February, Korea launched the “Corporate Value-up programme”, says Malene Jensen
