The Korea Opportunity: Why This Time Is Indeed Different

For decades, Korea has traded at a steep discount to global markets — a stubborn reality that has persisted regardless of macro cycles, earnings growth, or global capital flows. Investors who previously ventured into Korea often walked away disillusioned, burned by dilution, poor governance, or false dawns. Japan, by contrast, has seen a dramatic rerating as corporate reforms gained traction and capital discipline returned. So why revisit Korea now?

Because this time is different — structurally, not just cyclically.

From Discount Loop to Structural Reset 

Korea’s equity market is still valued at under 10x forward earnings — 30% lower than emerging market peers and nearly 60% cheaper than developed markets. The valuation gap is not about growth: corporate earnings are recovering, debt levels are low, and return on equity is rising. Instead, the discount reflects a deep structural malaise — one rooted in corporate behavior, governance inertia, and a distorted cost of capital.

What’s changing now is that the government, regulators and even corporates are finally taking steps to address these root causes namely through three structural reforms:

1. Legal Accountability to All Shareholders: On 3 July 2025, Korea passed a landmark amendment to its Commercial Act. For the first time, board directors are now legally obligated to act in the interest of all shareholders — not just controlling families. This provides significant recourse for shareholders and ensures directors are held accountable. It also empowers directors to resist undue influence from controlling interest holders, ensuring they act in the best interests of all shareholders. Most notably, it establishes a legal foundation for general shareholders to sue directors directly if their decisions harm shareholder profits or interests — even when the company itself is not materially affected. The law also enforces a 3% cap on major shareholders' voting power when appointing at least one audit committee member — a rule taking effect in July 2026 that allows general shareholders to secure at least one seat. The ruling party is now pushing to expand this to two or more members in the next round of reforms. 

2. Mandatory Retirement of Treasury Shares: Historically, Korean firms used share buybacks not to return capital but to entrench control (e.g. by issuing them to allies). The initial push to mandate treasury share retirement came through proposed amendments to the Commercial Act, but the requirement was ultimately left out of the second-round revision. Still, the attempt itself sent a clear signal to companies that lawmakers and regulators view unretired treasury shares as problematic and inconsistent with the spirit of capital market reform. As a result, companies are already taking preemptive action. In fact, KRW 15.5 trillion worth of shares were cancelled in the first half of 2025 alone—already surpassing the full-year total for 2024. This trend helps address Korea’s chronic equity oversupply, prevents dilution from reissuing treasury shares to insiders at discounted prices, and enforces capital discipline by shrinking the share base. 

3. Dividend Income Tax Reform: On 31 July 2025, the government unveiled a new tax reform that introduces separate taxation for dividend income, replacing the previous punitive system. Under the new framework, dividend income would be taxed separately at rates (incl. 10% local tax) ranging from 15.4% to 38.5% (vs. previous 49.5%). This preferential treatment would apply only to companies with a payout ratio of at least 40%, or at least 25% if their cash dividends have increased by 5% or more relative to the average of the past three years. While the reform is expected to restore meaningful incentives for both dividend payouts and long-term equity ownership, it is not yet finalized. Follow-up discussions among lawmakers are anticipated, especially in light of the negative market reactions to the proposed top rate—which surprised investors who had been expecting alignment with the capital gain tax. Finalization is likely by late September. 

Together, these changes mark a decisive attempt to normalize Korea’s cost of equity — a key driver of capital discipline and valuation.

Why These Reforms Are Sustainable

The reforms are not fleeting policy tweaks but entrenched legal shifts backed by institutional mechanisms. The government's Corporate Value-up Program, extended into 2025, includes ongoing FSC monitoring and penalties for non-compliance, ensuring long-term adherence. Crucially, capital market reform has become a durable, bipartisan priority—driven in part by Korea’s massive retail investor base, which now makes up over 30% of the electorate. This grassroots pressure has made it politically costly to reverse course, while the lawmakers leading reform efforts received the maximum allowable political donations in 2024, reflecting strong financial and public backing. At the same time, economic pressures, such as Korea's demographic challenges and need for foreign capital, reinforce this: higher shareholder returns are essential for sustaining pension funds and attracting global investors. Unlike past cycles, where reforms waned with economic upturns, these changes embed minority protections into the Commercial Act, making reversal politically and legally costly.

Evidence of Durability in Practice

Early indicators affirm sustainability. In the 2025 AGM season, many companies voluntarily raised dividends without facing shareholder proposals or proxy fights, reflecting proactive shift payout behavior. In 1H25, voluntary compliance with treasury share retirements exceeded expectations, driven by tax incentives and shareholder activism. Both Global funds, holding over 32% of the market, and domestic institutions like the National Pension Service (owning 7% of KOPSI) are enforcing through votes at AGMs. This multi-stakeholder ecosystem, minimizes backsliding and positions Korea for a Japan-like rerating, where similar reforms sustained a multi-year bull market.

The Market Is Responding — Quietly, but Decisively

The KOSPI is up +35.6% year-to-date, far outpacing other major indices — the S&P 500 has returned +8.2%, while Japan’s Nikkei has lagged at just +1.9%. While part of this rally reflects policy optimism and a rebound in risk sentiment, the deeper story lies in Korea’s emerging structural reform narrative. Yet despite this surge, valuations remain deeply discounted and investor participation uneven. Many institutional allocators — particularly those who were previously burned or unconvinced by Korea’s reform path — remain underweight. Their attention, often fixated on Japan, may soon need to shift.

Seeking Alpha

Offshore alpha investors are adopting a multifaceted approach to capitalize on the opportunity. While some opt for long-biased passive strategies—such as index-tracking funds that provide broad exposure to the KOSPI's undervalued equities—alpha seekers are gravitating toward actively managed strategies to unlock deeper value. These include catalyst-driven approaches, which target event-specific opportunities like corporate restructurings or share buybacks under the Corporate Value-up Program, and engagement strategies that involve direct dialogue with management to advocate for shareholder-friendly changes, often executed by seasoned, on-the-ground managers with intimate knowledge of local dynamics. As Korea remains an inefficient developed (ID) market characterized by persistent discounts and regulatory complexities, offshore investors typically structure their allocations through global vehicles, frequently domiciled in Cayman Islands for tax efficiency and flexibility, or routed via Hong Kong as a strategic gateway for seamless access to Asian capital markets and enhanced liquidity.

Conclusion: The Cost of Waiting
We’ve seen this movie before — in Japan, where skeptics stayed sidelined for too long. Korea today feels like Japan five years ago: unloved, misunderstood, but at the early stages of a profound regime shift. For long-term investors, the question is no longer why Korea trades at a discount. It’s how long that discount can last in the face of structural repair.

And that’s why — this time — it’s indeed different, and sustainably so. With legal protections now codified and economic tailwinds aligning, these reforms are poised to endure, fostering a virtuous cycle of higher valuations, increased investment, and robust shareholder returns.

About LIFE Asset Management, Inc.

Founded in 2021, LIFE Asset Management is a Korea-based investment firm recognized for pioneering a collaborative and engagement-driven approach to shareholder activism. As the country’s first and largest “friendly activist” hedge fund, LIFE combines deep local relationships with global standards of governance to unlock long-term value in undervalued companies. Backed by a diverse investor base—including Korean pensions, insurers, and global family offices—the firm has quickly grown to manage over USD 1.6 billion in assets. With a strong conviction in Korea’s structural rerating potential, LIFE actively engages portfolio companies on capital efficiency, governance restructuring, and sustainable shareholder returns, while maintaining a disciplined, valuation-driven investment approach.

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