Value-Up trade revived in South Korea as President Lee takes power

South Korean equities have been on a rollercoaster over the past few years. In early 2024, we saw exuberance fuelled by the announcement of the Corporate Value-Up program. Many were hoping the country was shaping up to follow in the footsteps of Japan – Super-cheap Korean equities rally on market reform talks

Hopes were shattered by disgraced former president Yoon’s attempt to impose martial law in December – South Korea rocked by president’s attempt to impose martial law

While the situation was precarious, South Korean institutions held firm and Yoon now sits in a Seoul detention centre awaiting trial while Democratic Party leader Lee Jae-Myung decisively won a June snap election on a platform of corporate governance reforms.

South Korean equities rally

Korean equities surged around the election, led by financials and technology stocks. We gradually lifted our underweight exposure to neutral and then a modest overweight through the first half of 2025, leaning into the promise of revisions to the Commercial Law Act and Lee’s support of the Value-Up program.

Source: LSEG Datastream

In our view, a series of policy initiatives pushed by the Lee administration have the potential to lift a host of beaten-down domestically focused names, outlined below.

Supporter of Value-Up

Despite being launched by Lee’s then opposition, his party is a supporter of Value-Up. The initiative, modelled on the Tokyo Stock Exchange reforms aims to narrow the « Korea Discount » by enhancing corporate governance, capital efficiency, and shareholder returns.

By publishing Value-Up plans and following through, Korean companies can access Korean Exchange fee exemptions, gain priority in investor relations events, and other awards to enhance market visibility. Taking these steps will also help to better align South Korean governance standards with global best practice, and in turn attract foreign capital and boost valuations.

Commercial Act revision

The Lee government quicky jumped into action to push through revisions to the Commercial Act, which align with the aims of Value-Up. In early July a revised version of the Commercial Act amendment was passed with support from both the Democratic Party and the conservative opposition as a compromise. This version:

1. mandates that directors balance corporate and shareholder interests;
2. requires electronic shareholder meetings for large listed companies (market cap over 2 trillion won, ~$1.5 billion); and
3. prohibits rejecting cumulative voting requests to empower minority shareholders.

The Cabinet approved these amendments on July 15, 2025, signalling their imminent implementation.

Encouraging more equity investment and less speculative investment in housing

The government is also intent on pushing for a shift in the balance of household wealth (approximately 70% of household assets) from real estate to equities. President Lee’s aim is to channel liquidity away from housing speculation to promote greater stability in the Korean economy, and redirect capital into equities. The idea is that this will fuel investment in more productive sectors such as technology and defence in order to stimulate innovation and economic growth.

Value-Up and revisions to the Commercial Act are key levers to encourage this shift by households into domestic stocks.

Excess liquidity provides fuel for stock market rallies

Source: CLSA

Fiscal loosening

The government is also taking direct action to counter stagnant economic growth. In June the government proposed a KRW30.5 trillion supplementary budget, representing 0.9% of GDP, with KRW10 trillion to be handed out as cash for consumption (equivalent to around USD100-350 per person depending on income).

Portfolio – financials exposure boosted

Our portfolio names in financials and technology in South Korea have rallied this year on hopes for President Lee Jae-Myung’s reform platform. Our position in Samsung Life is a beneficiary of the Value-Up program, and rose 67.7% in USD terms through the second quarter alone on expectations reforms will force the disposal of company holdings in affiliated companies. Samsung Life selling its position in Samsung Electronics would trigger a huge one-off gain which will free up cash to be re-deployed into more productive uses and boost returns on equity. We trimmed Samsung Life to rotate into laggard DB Insurance, which is cheaper and in our view, has greater upside catalysts, being yet to announce Value-Up plans.

Leading bank KB Financial was another strong performer, reporting robust profit growth along with a surprise share buyback and cancellation as well as a higher dividend. The bank trades on a modest 0.7x price to book with a return on equity of 9.7% and rising, as well as a 4% dividend yield.

KB Financial driving ROE higher

Source: KB Financial Q1 2025

… while buybacks continue

Source: KB Financial Q1 2025

… and dividends increase

Source: KB Financial Q1 2025

KB also looks set to benefit from planned fiscal loosening by the Lee government and falling central bank rates boosting loan growth.

More to come?

Shareholder and political pressure on South Korean corporates to address their poor corporate governance records continues to build. Progress will no doubt be slow and incremental, but there is a lot of low hanging fruit the government can pursue including changes to capital, dividend and capital gains taxes to encourage investment and reform simultaneously.

Success in these efforts could well be the basis for a full market re-rating.