How Much Is the Korea Discount Really Worth?

The term 'Korea Discount' is an easy answer, but it is also a misleading one.

How much is the Korea Discount really worth? Is it hundreds of trillions of won? Or even more? This question has puzzled South Korea's policymakers, businesses, and investors for decades, yet surprisingly, no one knows the exact answer.

There is ample evidence that South Korean stocks have long traded at lower valuations compared to comparable foreign markets. However, the overall valuation gap in the market only indicates that there is a problem; it does not explain what is undervalued, by how much, or why.

The Korea Discount does not apply uniformly to all companies.

As South Korea launched its first 'Korea Premium Week' on September 28, understanding these differences is particularly important. Organized by the Financial Services Commission and the Korea Exchange, this event involves 42 institutions and 55 listed companies over three weeks, aiming to establish itself as a leading international capital market event representing Korea. The very change in nomenclature is significant; the goal is no longer just to eliminate the discount but to create a Korea Premium.

This is a commendable goal. However, to transition from a discount to a premium, a much clearer understanding of the issues is necessary. It is unreasonable to assume that semiconductor manufacturers, banks, defense companies, and export-oriented industries are undervalued for the same reasons. Each company has different factors at play, including profitability, growth potential, governance, capital allocation, ownership structure, geopolitical risks, market accessibility, and international perception.

While the overall market may show undervaluation, diagnosing the issues of individual companies is not possible. Accurate diagnosis is crucial because solutions must vary depending on the causes.

South Korea is already addressing several practical issues. Corporate governance and shareholder protection have been strengthened. Interest in capital efficiency and shareholder returns has increased through corporate value enhancement programs. Reforms are underway to improve the foreign exchange market and market accessibility, and the obligation for English disclosures has been significantly expanded.

However, international perceptions have been slow to change. MSCI acknowledged South Korea's reforms in its 2026 assessment but noted that global investors still cite liquidity and practical burdens in the foreign exchange market as obstacles. It also mentioned that corporate information is not always easily accessible in English.

Just recently, an example reflecting this perception emerged. Ruchir Sharma, chairman of Rockefeller International, described South Korea's stock market as a 'national burden' in a Financial Times op-ed, despite its recent impressive performance. He argued that high volatility and speculative trading hinder serious investments from foreign investors and threaten South Korea's international credibility. More important than whether this diagnosis is entirely accurate is the fact that such a perspective can be presented as a compelling argument in the Financial Times.

I believe a crucial distinction needs to be made here.

The Korea Discount itself may represent a gap in reputation. However, not all reputation gaps are merely issues of perception. Sometimes, there are substantial problems.

If it is clearly proven that governance is robust, yet foreign investors perceive it as weak, this could be a gap in perception. Conversely, if governance is genuinely weak, that perception is valid. If capital allocation has genuinely improved but investors fail to recognize it, there may be issues with information dissemination or communication with investors. On the other hand, if capital is being allocated inefficiently, that is a tangible problem.

Good communication cannot rectify weak fundamentals. Similarly, even if substantial improvements are made, if international stakeholders do not understand or acknowledge them, the positive effects on reputation and corporate value may not materialize sufficiently. The key lies in distinguishing between the two. To achieve this, the Korea Discount must be examined on a company-by-company basis, more empirically.

In researching this issue, I have focused on four practical principles. They may seem simple on the surface, but they are anything but.

First, measure. We must assess the valuation gaps of individual companies and determine how much of that can be reasonably explained by fundamentals, peer comparisons, and structural factors.

Second, clarify. We need to verify what image companies are actually projecting abroad through disclosures, investor materials, executive statements, and various publicly available information.

Third, listen. We must systematically understand what information foreign investors, analysts, media, and other stakeholders are receiving and how they interpret it. Only then can we act to bridge those gaps.

Neither companies nor countries own their reputations. Reputations exist in the minds of investors, customers, governments, journalists, employees, and the general public. While South Korea cannot control their perceptions, it can strive to influence them. Ultimately, the most powerful influence does not come from what South Korea says about itself but from what it demonstrates through its actions.

Understand how the world truly thinks. Correct what is wrong. Prove what is right.

From this perspective, Korea Premium Week signifies more than just a promotional opportunity. The Financial Services Commission has acknowledged that South Korea's capital market IR activities have been conducted individually, leading to a dispersion of foreign investor interest and limitations in conveying the overall competitiveness of the market. Therefore, consolidating these activities is not merely a change in presentation; it is a substantive action.

However, ultimately, the success of this event should not be evaluated solely on what South Korea communicates over the three weeks. It should be assessed based on what international stakeholders understand, believe, and how they act afterward. The goal should not be to persuade foreign investors that all South Korean companies deserve higher valuations. Some companies may warrant that, while others may not. The objective should be to ensure that the value of South Korean companies is assessed based on as much evidence as possible while distinguishing between actual weaknesses and issues arising from misunderstandings.

The Korea Premium cannot be created merely by declaration or verbal communication. Each company must earn it step by step through actions and words. Action must come first.

About the Author
Bill Lylance has worked with South Korea's government, businesses, and institutions for nearly 40 years, participating in the 1988 Seoul Olympics and the 2002 FIFA World Cup, and advising the Blue House during the foreign exchange crisis. He is currently the chairman of Harmonai, an AI-focused consulting firm based in London.

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