Global Investment Firm Managing 900 Trillion Won Says "KOSPI Index Remains Undervalued" [Weekend Money]

Improvement in Corporate Governance and Capital Efficiency
KKR: "Causes of Undervaluation in Korean Stocks Are Disappearing"
"Including Korea in the Ongoing Industrial Realignment, such as Semiconductor Supply Chains"

In early June, the South Korean stock market experienced extreme volatility, leading to divergent views on the outlook for the second half of the year. Analysts are diagnosing the situation as a complex phase where interest rates, exchange rates, market supply and demand, policy expectations, and profit-taking sales are all intertwined, heightening investor anxiety.

In this context, global investment firm Kohlberg Kravis Roberts (KKR) has released its outlook report for the second half of 2026, asserting that "Korean equities remain cheap." While the overall theme of the report centers on the global macroeconomy and asset allocation, it contains considerable commentary on the Korean market. KKR maintains a positive perspective on Asian markets, particularly highlighting South Korea and Japan as representative players.

Corporate Restructuring and Increased Capital Efficiency...Eliminating Fundamental Causes of the Korea Discount

KKR points out that the undervaluation of the Korean stock market did not occur by chance. The so-called "Korea discount" has largely stemmed from vulnerable governance structures, opaque corporate frameworks, and inefficient shareholder return policies. In other words, there were reasons why Korean stocks have historically traded at low valuations.

However, KKR notes that this situation is changing, opening up new investment opportunities. If companies simplify their governance structures, improve capital allocation, and enhance shareholder returns, the market's assessment could shift accordingly.

The report suggests that the trend of corporate restructuring, which began in Japan, is now spreading to South Korea, and this opportunity could be greater than investors anticipate. Japanese companies are already moving to improve capital efficiency and expand shareholder returns, and Korean companies are following a similar path.

Surge in Share Buybacks and Low PBR...Basis for Revaluation

One of the key reasons KKR has a positive outlook on the Korean stock market is the tangible change in corporate behavior. According to the report, announcements of share buybacks by Korean companies have recently increased significantly. Share buybacks involve companies repurchasing their own shares on the market, which is linked to expanding shareholder returns, increasing per-share value, and improving capital efficiency.

The report explains that the cumulative value of share buyback announcements by Korean companies in 2025 has increased at a much faster pace compared to the years 2020 to 2024. This can be interpreted as a sign that Korean companies are becoming more conscious of shareholder value than in the past.

Another critical indicator is the price-to-book ratio (PBR), which shows the extent to which a company's stock price is valued relative to its book value. A PBR of less than 1 means the market is valuing the company below its book value.

KKR points out that 70% of the Korean market is still trading below book value. Compared to Japan's 40% and the United States' less than 7%, this indicates a much deeper undervaluation in the Korean stock market. While some of the expectations for corporate reform have already been reflected in rising stock prices, KKR believes there is still room for further revaluation.

Another Engine: Geopolitics and the 'Semiconductor Supply Chain'

Another positive factor for the Korean market is the macro-level industrial realignment. KKR identifies "Security of Everything," the convergence of geopolitics and economics, as one of the key themes shaping the future global economy. In the wake of the pandemic, the war in Ukraine, and conflicts in the Middle East, governments and companies worldwide have prioritized stability, resilience, and control in supply chains over mere efficiency.

Within this trend, semiconductors and AI hardware are transforming from simple industrial goods into strategic assets directly tied to national security. KKR believes that demand for supply chain resilience is increasing not only in energy but also in food, water, chips, and all critical inputs.

Given South Korea's crucial position in the memory semiconductor and AI hardware supply chains, the country stands at the center of this global industrial transformation. Thus, perspectives on the Korean stock market are evolving beyond just discussions of low PBR, increasingly focusing on structural changes where security and technology supply chains converge.

Private Equity Opportunities Emerging from Corporate Governance Reforms

Meanwhile, the trend of corporate restructuring is expected to create new opportunities not only in the stock market but also in private equity markets.

KKR anticipates that companies will increasingly seek to boost capital efficiency by simplifying complex business structures, divesting non-core assets, and withdrawing capital from low-return businesses. As part of this process, carve-outs—spinning off or selling non-core divisions—are expected to become significant investment opportunities.

This content was produced with the assistance of AI translation services.