Why Are Activist Funds Eyeing Korea?...The Opportunity Created by the "Korea Discount"

Short-Selling Specialist Safkhet Shifts to Long Activism
Commercial Act Amendments and Market Reform in Korea
Foreign Capital Sees Investment Opportunities
"Increased Capital Inflows Bring Korea Closer to Global Standards"

The underlying reason why foreign activist funds are turning their attention to the Korean market is optimism that the so-called "Korea Discount" can be addressed. In the past, the Korean stock market was undervalued due to chronic weaknesses such as low shareholder return rates, complicated corporate governance structures, and decision-making centered on controlling shareholders. However, recently, these drawbacks themselves are being viewed as investment opportunities. Institutional changes, such as amendments to the Commercial Act, mandatory retirement of treasury shares, and the Value-up Program, have provided stronger justification for demanding improvements in the value of undervalued companies.

"Now is the Cheapest Time"… Transformation Underway for the Korean Market

According to financial authorities on September 11, the Lee Jaemyung administration has been rolling out a series of capital market reforms aimed at enhancing protection for minority shareholders and raising corporate value. In line with the amended Commercial Act, the Financial Services Commission has updated related regulations to require listed companies to provide more comprehensive disclosure of their holdings and disposal plans for treasury shares. The intention is to ensure that treasury shares are not used merely as short-term stock price management or as a tool to defend management control, but rather as a means to enhance corporate value over the long term.

Additionally, starting in November, the financial authorities will publicize companies—classified by the 11 sectors under the Global Industry Classification Standard (GICS)—whose price-to-book ratio (PBR) has continuously remained in the bottom 25% on the KOSPI or the bottom 10% on the KOSDAQ over the past three years. This is an explicit move by the government to put pressure on companies whose market value is excessively low relative to their assets.

These changes are giving activist investors renewed justification to focus on the Korean market. In the past, it was difficult for outside shareholders to raise issues even when companies held large amounts of treasury shares, paid low dividends, or maintained opaque governance structures. Now, however, with treasury share retirement, board accountability, and protection for minority shareholders entering the mainstream regulatory agenda, activist funds have more room to voice their demands.

According to analysts in the securities industry, domestic activist campaigns are evolving from seeking simple shareholder returns to addressing issues related to board composition and capital allocation. According to Hanwha Investment & Securities' "Governance Impact" report published last month, demands for board entry accounted for the largest share (24.7%) in activist campaigns launched in Korea from 2025 through the first half of 2026—a rise of 13.8 percentage points compared to before 2025. In contrast, demands for shareholder returns declined by 7.9 percentage points over the same period. Park Seyoun, a researcher at Hanwha Investment & Securities, analyzed, "Activist demands are expanding from short-term returns such as dividends and treasury shares to long-term issues that require ongoing implementation, such as board structure, capital allocation, and strategic change."

After Japan’s Experience, Korea Becomes the "Next Market"

The perspective of foreign asset managers on Korea also draws on Japan’s recent experience. For the past several years, Japan has been a major stage for global activist funds. Hanwha Investment & Securities analyzed that the number of global activist campaigns will reach a record high of 765 in 2025, with most of the accelerating activity shifting towards Asia. Of the 163 additional global activist campaigns from 2018 to 2025, 81% were in Japan and 92% were in Japan and Korea combined. Park, the researcher, commented, "Korea is in the early stage, following Japan by about five to seven years."

Parallon Capital Management, which is considering entering the Korean market, is an asset manager that has already leveraged similar changes in Japan. In 2022, it became the third-largest shareholder in Toshiba, holding over 6% of its shares, opposed the company’s proposed split, and called for a public sales process of the company. At that time, Parallon criticized Toshiba for pursuing the split without thoroughly reviewing alternatives such as an acquisition by a private equity fund.

The case of Astellas Pharma also stands out. According to major foreign media outlets, last year Parallon surpassed a 3% stake in Japanese pharmaceutical giant Astellas Pharma to become a major shareholder, and demanded cost-cutting, restructuring of research and development strategies, and a review of its merger and acquisition (M&A) strategy.

Short-Selling Experts Turning to "Long Activism"

The case of Safkhet Capital symbolizes the changing landscape of the Korean market. Fahmi Qadir, founder and Chief Investment Officer (CIO) of Safkhet Capital—widely known as a specialist in short-selling—has now chosen Korea as a new stage. Previously, he made a name for himself by betting on the stock price declines of companies such as Canadian pharmaceuticals firm Valeant and German fintech company Wirecard, by highlighting accounting and governance issues in these firms. However, in Korea, instead of attacking problematic firms and betting on share price drops, he has shifted to acquiring undervalued companies and demanding improvements in corporate governance and shareholder returns.

In the market, this is interpreted as evidence that Korea is no longer just a "cheap market," but rather a market with the potential for transformation. If there were no institutional catalysts to resolve undervaluation, activist funds would remain tied up for long periods; however, with institutional reforms and the simultaneous improvement in perceptions of shareholder capitalism, there is now a chance of success. Already, the Korea Value-up Index announced by the Korea Exchange has surged 85.2% this year through the previous day, outpacing the KOSPI return of 66.9%.

Namwoo Lee, Chairman of the Korea Corporate Governance Forum, explained, "If the Korea Discount has long been a weakness in the Korean market, the moment that weakness reverses becomes the ideal timing for activist funds to invest. The more foreign activist capital flows into Korea, the more the market will align with global standards, and the lower the volatility of share prices will become."

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