What’s the ‘Korea Discount’ and Why Is It a Problem?

Global investors are watching if South Korea can make company boards more accountable to stockholders. Shares in the country tend to trade at lower valuations than their peers overseas, with analysts saying poor corporate governance is one factor behind what is known as the “Korea Discount.” President Yoon Suk Yeol has made fixing it a priority as he seeks to win favor with a growing base of retail investors. He’s not the first leader to try, and he’ll need to overcome powerful business interests that have benefited from the status quo.

South Korea is home to major companies such as Samsung Electronics Co., one of the biggest makers of smartphones on the planet, and the Hyundai Motor Group, the world’s third-largest automaker. But investors often price them below their book value and lower than overseas rivals, such as Taiwan Semiconductor Manufacturing Co. or Toyota Motor Corp., even when they achieve a comparable level of profitability. One explanation is the risk discount placed on South Korean assets because of the country’s standoff with nuclear-armed North Korea. More credible reasons can be found in the corporate structures that were pillars of the nation’s “miracle economy” but may now be holding it back.