South Korean Stock Market Repeatedly Hits Intraday Highs in October - Has the "Korea Discount" Disappeared?

Arjun Jayaraman, portfolio manager at Causeway Capital Management, stated: "None of us can ignore the momentum brought by the AI boom, which is even a long-term growth driver for the coming years." He cited examples, saying that Samsung and SK Hynix "can become core stocks benefiting from this growth momentum."

Data from Yuanta Securities shows that the combined market capitalization of Samsung Electronics and SK Hynix has exceeded 1,000 trillion won, accounting for over 30% of the entire Korea Composite Stock Price Index (KOSPI). Daniel Yoo, Head of Global Asset Allocation at Yuanta Securities, said: "The main drivers of the recent rally in the South Korean stock market are the recovery of the memory semiconductor industry and the subsequent upward revisions in corporate earnings." Predictions of a super-cycle triggered by the global shortage of memory chips have led to strong investor expectations for earnings from major related companies like Samsung and SK Hynix, further boosting investor sentiment.

Besides the AI boom, the policy changes under the Lee Myung-bak government and corporate governance reforms have also enhanced the investment value of the South Korean stock market. Market experts indicated that South Korean regulators and legislators are increasingly promoting shareholder-friendly practices under the "Value-up Program," which aims to narrow the valuation gap between South Korean companies and their global peers. Fiona Yang, portfolio manager at Invesco, noted: "Historically, South Korean stock market valuations have been significantly lower than those in global and other Asia-Pacific markets. This situation is referred to as the 'Korea Discount,' stemming from investor concerns about corporate governance and low shareholder returns in South Korea."

Michelle Kam, Investment Strategist at the Standard Chartered Bank Chief Investment Office, said: "Investors expect the South Korean government to continue firmly implementing the Corporate Value-up Program. The anticipation of eliminating the long-standing 'Korea Discount' and boosting the performance of the South Korean stock market has largely supported the recent rally." Fiona Yang added: "If regulators continue to commit to these value-enhancing initiatives, the South Korean stock market will see sustained growth."

Some measures under the "Corporate Value-up" program include providing tax incentives for companies joining the program, particularly those increasing dividend payments or stock buybacks. This can encourage companies to use excess cash for dividend returns, buybacks, and business restructuring.