The Korean stock market has rebounded strongly following the Democratic Party’s election victory. The KOSPI rose 3% on the news that Lee Jae-myung would become the country’s new president, hitting a 10-month high and lifting the index 16% higher year-to-date[1].
I believe that the market rally could gain momentum as Korea’s political uncertainty recedes – in his victory speech Lee pledged to protect democracy following the failed attempt to impose martial law by his ousted conservative predecessor Yoon Suk Yeol in December.
In addition to expectations for increased fiscal spending and the reviving of US trade talks to avert 25% ‘reciprocal’ tariffs, investors are also hopeful that the new government will rally behind the Value-Up programme and encourage corporates to continue closing the ‘Korea discount’. The country’s stock market remains among the cheapest, trading on a P/E of only 8x.
China-US balancing act
Victory for the left-leaning Democratic Party did not come as a surprise and the key from here is policy implementation. In recent quarters, Lee has gravitated to a more centrist stance to secure election, vowing to unite a country currently divided by partisan polarization.
He will also have to tread carefully economically, needing to negotiate a trade agreement with the US while navigating sensitivities over any deal being perceived as anti-Chinese, given the two countries’ strong economic linkages.
On the geopolitical front, Lee must proceed with similar caution. Although the US is Korea's traditional key defence ally, a US security guarantee comes with greater conditionality these days. It seems likely the Democratic Party will pursue “practical diplomacy” based on the Korea-US alliance, while being sensitive to China with whom Lee has stated his desire to improve Korea’s relationship. Balancing both US and China relations will be hard but critical.
Value-Up re-energised
The key to sustainably lifting investor sentiment is Korea’s Value-Up reforms. The Democratic Party now control both the President office (until at least 2030) and National Assembly (until at least 2028). All eyes will be on changes to the Commercial Code (to lift pressure on boards to protect minorities) and Insurance Act (to limit holdings of non-financial assets). After slower momentum over the past six months, a Value-Up ‘supercharge’ is likely given the new government’s consolidated control of both its legislative and executive branches.
The new president is also focused on strengthening market discipline to protect shareholder rights through corporate governance reforms rather than direct government intervention. Lee is widely known to be a major retail investor himself. Another positive development is the shifting of board responsibilities from companies to all shareholders which will have a profound impact on board composition, compensation and behaviour. Board members – currently often connected parties or university professors – are likely to professionalise if they become legally accountable to minority shareholders, which would clearly be positive for corporate governance.
Kon-Tiki uplift
SKAGEN Kon-Tiki retains significant exposure to Korea where companies account for 23% of the fund versus 10% for the MSCI Emerging Markets index. Our largest positions are in Samsung Electronics (6% of NAV), Hana Financial (4%), LG Electronics (3%), Hyundai Motor (2%) and Korean Reinsurance (2%), whom I visited in mid-May as part of a Korean trip to meet with key portfolio holdings and potential new investments.
The overall mood amongst the financials companies I met with was very positive with management expecting an opposition victory and continuation of the Value-Up programme with retail investors seen as key to building political momentum ahead of the elections. The sector has seen a complete change in regulator behaviour now that shareholder return programmes have been linked to capital positions, with no pushback on hiking payouts and public sentiment improving now that interest rates are no longer going up.
Trends also remain strong operationally and margins healthy as banks remain focused on shareholder returns over growth and disciplined on costs, while asset quality is generally good. Valuations among our holdings are very attractive, particularly with 10% earnings grown and healthy share buybacks possible.
Meetings with companies in the technology sector meanwhile illustrated that the memory market has been transformed by the AI revolution and the need for high bandwidth memory (HBM). Aside from AI-related demand, industry watchers expect a PC replacement cycle (upgrades from Windows 10 and COVID purchases) as well as smartphones to drive significant growth in the next few years. There has been some pull-forward of demand due to tariff fears, which are likely to persist. With US tariffs based on final assembly location, exporters will be focused on doing this outside China.
Tariffs was also a hot meeting topic among consumer companies, particularly for export-oriented businesses and especially those with a large (and profitable) presence in the US. Rather than raising prices immediately, their prevailing stance is to wait and see, using current profit margins as cushion.
Outside of the US, most end-markets are strong with Korean brands enjoying competitive positions based on technology (hybrid drive trains), premium positioning (consumer electronics) and localised production (cost advantages). India is a key and under-appreciated market for Korean players with only Hyundai having listed its local business for a premium valuation. A further positive is that Hyundai Motor and Kia have both communicated clear shareholder return plans with a commitment to minimum dividends, even in a cyclical downturn.
Finally, discussions with materials companies highlighted that the sector is seeing a pronounced downturn in the EV battery market as end-demand has failed to meet expectations underpinning significant capacity expansion, both in the US and in Europe. Capex plans are being cut to preserve already strained balance sheets while tariffs and Trump’s resistance to EV subsidies present further headwinds to navigate.
[1] As at 4 June 2025.