Under the Macroscope: South Korea—from ‘discount’ to ‘re-rating’—but only if policy becomes behaviour

South Korea’s equity market is enjoying a powerful rally driven by its pivotal role in the AI memory supply chain and a growing defence export cycle, yet it still trades at a structural discount that reflects long-standing governance concerns. The Lee administration’s shareholder-focused reforms, including mandatory treasury share cancellations and more favourable dividend taxation, are directionally positive but will only matter for valuations once they translate into consistent corporate actions. Investors should expect a lag between policy announcements and observable changes in payout policies, buybacks and governance practices, with more tangible evidence likely emerging from late 2026 onward.

The “Korea Discount” is narrowing as activism rises and capital returns improve, but it has not disappeared because questions remain around minority protections, chaebol structures and policy durability across political cycles. For global allocators, earnings strength in semiconductors remains the core anchor of the investment case, while currency volatility in the won is an important but not decisive factor if fundamentals continue to deliver.