Global investors are turning up the pressure on South Korea's largest conglomerates, known as chaebol, to deliver on promised governance reforms and shareholder returns. The push comes as the country's stock market continues to trade at a steep discount to global peers, despite a government-led “value-up” campaign launched to address the problem.
The reforms have so far produced uneven results. Some banks and financial holding companies have won credit from investors by canceling treasury shares — stock a company previously bought back and holds on its books. Canceling those shares reduces the total number outstanding, which can boost earnings per share and signal a commitment to returning capital. But many of the largest chaebol affiliates, including Samsung, have moved slowly, leaving their shares trading at valuations that global fund managers say are too cheap to ignore.
What is the “value-up” drive?
South Korea's “value-up” program, introduced in early 2024, is a government initiative modeled on Japan's successful corporate governance reforms. It encourages listed companies to improve shareholder returns through higher dividends, share buybacks, and better board oversight. The goal is to close the so-called “Korea discount” — the tendency for South Korean stocks to trade at lower valuations than comparable companies in other developed markets.
The discount is stark. According to LSEG data cited in the brief, South Korea trades at around 3.85 times expected earnings, compared with 17.64 for the MSCI World Index. Roughly 70% of stocks listed on the KOSPI, the country's main benchmark, sit at or below book value — meaning the market values them at less than the value of their assets. For investors, that suggests the market is pricing in poor governance, low returns on equity, or a combination of both.
Japan's experience shows what can happen when reforms take hold. After Tokyo pushed companies to improve capital efficiency, the Nikkei index hit record highs and foreign money flowed back in. South Korea's reforms have drawn comparisons, but progress has been slower and more selective.
Why Samsung matters
Samsung Electronics is the most visible example of the disconnect. As the country's largest company and a global leader in memory chips and smartphones, it should command a premium. Instead, its shares have long traded at a fraction of the price-to-earnings ratios of global tech peers. Investors argue that Samsung's massive cash pile and complex cross-shareholding structure — a hallmark of chaebol governance — have historically favored founding families over minority shareholders.
The brief notes that big groups like Samsung face calls for bigger buybacks and simpler structures. A simpler holding structure could reduce the layers of ownership that often obscure who actually controls a company and make it harder for minority investors to benefit from profits. Bigger buybacks, meanwhile, would directly return cash to shareholders and could help lift the stock price.
So far, Samsung has announced some buyback plans, but investors say they want more, and faster. The company's response will be closely watched as a test of whether the chaebol are serious about change.
What it means for investors
For everyday investors, the Korea discount represents both a risk and an opportunity. If reforms accelerate, the market could re-rate higher, delivering gains for those who hold South Korean stocks or funds. But if progress stalls, the discount could persist, and investors may continue to see returns lag global benchmarks.
The uneven nature of the reforms means stock selection matters. Financial companies that have canceled treasury shares have been rewarded with higher valuations, while slower-moving conglomerates have not. Investors should look at whether companies are actually following through on their promises, not just announcing them.
For those investing through exchange-traded funds (ETFs) or index funds, the KOSPI's heavy weighting in chaebol stocks means the entire market's performance is tied to their behavior. A single global ETF can offer broad exposure, but it won't capture the specific dynamics of South Korea's reform story.
The broader context also matters. South Korea's market has been volatile recently, with the KOSPI sliding sharply on global tech losses, as chip giants took a hit. That volatility underscores the risks of concentrated exposure to a single market.
Analysts say the next few quarters will be crucial. If more chaebol follow the lead of the financial companies and announce meaningful buybacks or structural changes, the value-up drive could gain momentum. If not, the gap between South Korea and the rest of the world may only widen.
For now, the message from global investors is clear: they want proof, not promises. As one MSCI analysis put it, reforms need proof, not promises. The chaebol have the cash and the assets; the question is whether they will use them to reward the shareholders who have waited years for a return.
