MarketsMar 21, 2024
South Korea Is At The Forefront of AI, EVs, and Biotech — But Its Stock Market Valuation Lags the Rest of the Industrial World
Equity Reform
Noah Weidner
Discover
When South Korea isn’t dealing with troublesome neighbors, low birth rates, and high cost of living, it’s figuring out ways to turn its underperforming stock market around.
Despite being home to valuable companies on the cutting edge of artificial intelligence (AI), electric vehicles (EVs), and biotech, the world’s 13th largest economy doesn’t get the same investor appreciation as other industrialized countries like Taiwan or Japan.
It’s called the Korea Discount… and in this case, the discount isn’t a good thing. It refers to the way that South Korean firms (i.e., Samsung, SK Inc., and LG) trade at significantly lower valuations compared to global competitors. The discount hinders economic growth, makes it tough for companies to raise capital, and makes the country’s stock market unattractive to investors. But the discount has surprisingly historical roots.
South Korea aims to tackle these issues by reducing inheritance taxes and implementing market reforms to protect minority shareholders and encourage companies to prioritize returns and governance. Investors are skeptical, but even a small improvement could yield billions in new market value.
Will it work? It did for Japan, whose stock market struggled for decades until the government initiated corporate reforms in 2013. It took almost 10 years, but Japan’s economy is now on fire — rising nearly 50% in the past year, surpassing the S&P 500. South Korea seems to be following a similar path, with Goldman Sachs predicting one of the highest earnings growth rates globally this year — projecting a 54% increase in 2024 and 20% the following year.
