Long read: How Korea’s President Turned Its Market Into the World’s Best Performer

When we talk about corporate governance issues in Indian companies with foreign investors, they say we look squeaky clean compared to our East Asian peers including the much-developed economies such as Japan and Korea. Indeed, it wasn’t until recently when the late Japanese PM Shinzo Abe drove corporate governance reforms, that attracted governance focused foreign investors including the legendary Warren Buffett who saw Japan as investible. Something akin to that seems to be happening in Korea, again driven by its President Lee Jae Myung.

Korea has been the best performing market in the world over the past year, up a staggering 147%. So, what drove this rally?

First, Korea’s two big memory chip makers Samsung and SK Hynix have been big beneficiaries of the AI boom, very little to do with Lee’s reforms. Having said that, there does seem to be a reform play as well.

It helped that the President at some point in his past was a retail day trader:

“As a retail trader, Lee understood that powerful conglomerates routinely saddled minority shareholders with losses through transactions favoring controlling families. A commercial code that bound board members to the interests of major shareholders rather than all only deepened the imbalance. Investors have cited various transactions as reasons for caution, including the 2015 merger of two Samsung affiliates despite warnings from Elliott Management Corp. that the low purchase price would hurt shareholders.”

Lee acknowledges that he wasn’t particularly good at day trading but:

“No, what bothers him — according to interviews with over half a dozen people close to Lee, many of whom requested anonymity to discuss private conversations — is the gnawing sensation that those losses were amplified, again and again, by the unfair deals that controlling shareholders cut to enrich themselves at the expense of ordinary investors.

The aspirational index target aimed to show his determination to reshape Korea’s economic model and fix a market stuck with some of the lowest stock valuations among major countries.

…Lee became president after the country was plunged into a political crisis following Yoon’s martial law gamble, relying on the Kospi 5000 pledge to reassure voters. He campaigned on reforms to target long-overlooked corporate governance problems, including mandatory cancellation of treasury shares used by founding families to keep control.

….within a month of his inauguration, Lee pushed through a revision to expand the role of fiduciary duties to boost board accountability. He would go on to overhaul dividend taxes to encourage payouts, expand enforcement resources to root out market wrongdoing and unveil a roadmap toward developed-market status by MSCI Inc. — major steps investors say are key to ending the Korea discount and lifting growth.”

There seems to be more reforms on the anvil including tax incentives for dividends and buybacks as well as insider trading curbs. Furthermore, much like India, Koreans love their real estate. Diverting capital away from property is amongst the President’s plans as well: “What’s more, the bull market is forcing Koreans to reassess their obsession with real estate. For decades, it was seen by many here as the only way to create wealth, accounting for nearly three quarters of household assets. The “over-concentration of property ownership over financial assets is about to reverse,” said Peter S. Kim, global investment strategist at KB Securities Co. This, he said, is “one of the most profound trends from Korea in the coming decade.””

With K-pop and K-drama, we might add K-market to the lexicon at this rate.

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