KKR: "Bear-Hug Rules Make South Korean Market More Attractive"

A Higher Share of Companies with PBRs Below 1 Than in Japan
Expectations for Corporate Revaluations Driven by Regulatory Changes

Global alternative asset manager Kohlberg Kravis Roberts (KKR) has identified another attraction in the South Korean market beyond semiconductors: the potential for companies to be revalued following improvements to capital market rules. It cited efforts to introduce “bear hug” legislation as a key investment opportunity. The proposed rules would require boards to disclose takeover offers and formally review them in the interests of all shareholders.

On October 8, KKR outlined its outlook for the South Korean market in a report titled “Investment Outlook from the Field.” According to the report, Henry McVey, KKR’s head of global macro and asset allocation and chief investment officer of its balance sheet, said, “South Korea’s corporate reform is emerging as a more attractive investment opportunity.” The report said that, in addition to the attention South Korea has received for its semiconductor industry, investors should pay closer attention to the country’s unfolding corporate reforms.

McVey noted that South Korean companies have long been undervalued. He pointed out that more companies trade below book value in South Korea than in Japan. According to the report, as of September 27, companies with a price-to-book ratio (PBR) below 1 still accounted for more than 70% of the KOSPI, compared with just 30% of the TOPIX in Japan. A PBR below 1 means a company’s market value is lower than its net asset value on the books. The report said these companies could be revalued through reforms. It described South Korea’s corporate reform as an investment theme that will unfold over several years, with related investment opportunities still at an early stage. It also said South Korea’s mar

The report also pointed to specific regulatory changes that could drive corporate reform, highlighting efforts to legislate a “bear hug” mechanism in mergers and acquisitions (M&A). A bear hug mechanism would require a company’s board to disclose a takeover offer and formally review it in the interests of all shareholders. “For regulatory changes to lead to sustained corporate revaluations, board independence, an expanded role for the National Pension Service in disclosing information related to the exercise of voting rights, and the judiciary’s enforcement capabilities are also important,” McVey said.

The report also said that increased investment in AI is supporting the performance of South Korean semiconductor companies. Strong demand, limited supply capacity, and resilient prices are key factors driving earnings growth in the semiconductor sector.

Meanwhile, the report forecast that the global investment expansion would extend across a broader range of sectors and last longer than expected. Investment is increasing not only in artificial intelligence (AI), but also in defense, infrastructure, energy, and supply chain resilience, driving greater demand for capital, labor, and electricity. The report said corporate investment in equipment and facilities could support productivity and economic growth while also adding to inflationary pressures.

Accordingly, it expects inflation and interest rates to remain higher than during the previous period of low growth and low inflation, and has raised some of its interest rate forecasts. However, it said market expectations that rate hikes would continue in the near term may be excessive.

By region, the report said that in Europe, corporate investment, defense and infrastructure spending, and intra-regional trade are supporting growth as consumption and the housing sector remain constrained. In Asia, it said the benefits of AI investment are spreading beyond semiconductors to equipment, materials, power, and data centers. It also identified rising consumption, industries and infrastructure supporting AI adoption, corporate reform, intra-regional trade, and decarbonization as five long-term investment themes in Asia.

In terms of asset allocation, KKR maintained its existing stance of holding a relatively lower weighting in government bonds and a higher weighting in real assets, while highlighting private investments related to corporate reform that boosts productivity. In private credit, it said it is focused on capital solutions tailored to the funding needs of individual companies, while favoring higher-quality assets in liquid credit markets. The full report is available on KKR’s official website.

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