AVI’s Korea Opportunity

AVI’s Korea Opportunity

Korea is a market that AVI has long followed; the prevalence of companies with complex holding structures and the country’s deep equity market, home to many globally leading companies across a number of industries, alongside structural undervaluation, have made it an interesting proposition. With that said, although we have episodically made investments in Korea over the last 15 years, it is generally a market we have struggled to become excited about. Corporate governance, particularly from the chaebols, has been atrocious, and this has been a stumbling block.

However, this has all changed, and at speed. In the last 8 months we have built a 15% position[1] in AVI Global Trust plc and 20% in AVI Global Special Situations.

Our change in conviction has been driven by recent political changes under President Lee Jae-myung, notably amendments to the Commercial Act which significantly strengthen shareholder rights and signal potentially deeper and more substantive changes. Coupled with rising shareholder activism, we believe this evolving governance landscape offers fertile ground for AVI’s style of engaged, activist investing — an approach we successfully honed over the past decade in Japan. 

South Korea’s economic ascent following the Korean War was deemed a miracle, as the country rapidly transformed from an agrarian society to the high-tech industrial powerhouse responsible for cutting edge semiconductors, smartphones display panels and consumer electronics.

Central to this remarkable transformation were the chaebols, sprawling family-controlled conglomerates like Samsung, LG, Hyundai, and SK Group. Through strategic partnerships with successive governments, the chaebols became Korea’s primary engines for growth, and in return received numerous subsidies, preferential loans, tariff protection and tax incentives. Consequently, this collaboration concentrated immense power around a handful of chaebol families.

However, Korean chaebols have become synonymous with entrenched corporate governance issues, and their long-standing track record of related-party transactions, minority shareholder exploitation, opaque financial structures, and poor capital allocation policies does little to assuage the concerns of investors.

Over the last decade, attitudes to corporate governance have slowly improved, however, and there are increasing signs that attitudes towards shareholders are shifting.

High-profile examples of better governance practices are emerging: Samsung Electronics has announced regular dividend increases and share buybacks, Samsung Biologics completed the spin-off of Samsung Epis Holdings at a fair merger ratio, while Hyundai Motor Group and SK Group have taken steps to simplify ownership structures and spin off non-core assets.

The steady rise of domestic activist funds and the willingness of foreign investors to engage more assertively with management teams have also contributed to this change in tone. Perhaps most importantly, there is a growing recognition within chaebol leadership that corporate value creation and shareholder alignment are no longer optional, but essential to attracting capital, maintaining competitiveness, and securing long-term control.

These green shoots of reform offer the potential for a meaningful re-rating of Korean equities if built-upon, and should mark a turning point for investors who long avoided the market due to previous governance issues.

Aside from corporate governance tailwinds, structural undervaluation has aided our conviction. As of December 2025, the KOSPI trades at approximately 1.4x[2] forward price-to-book, substantially below both the emerging market and developed market averages of 2x and 3.5x, respectively. This measly valuation of Korean equities extends broadly across all sectors, with approximately 70% of KOSPI-listed stocks trading below book value and around 40% trading below 0.5x book value. Additionally, foreign ownership of Korean equities remains historically low at approximately 36%[3], significantly trailing comparable Asian markets such as Taiwan, where foreign ownership exceeds 50%[4].

The market remains disproportionately weighted towards a handful of large conglomerates, notably Samsung Electronics (approximately 33% of the MSCI Korea including its preference shares) and SK Hynix (18%), together comprising 51% of the index[5]. In contrast, the Magnificent Seven, whose increasing concentration in the S&P 500 has raised concerns by global investors – accounts for 34% of the index[6].

Not only does this concentration led to diminished market liquidity, but it significantly reduces institutional investor choice when allocating to Korea, limiting diversification opportunities for many sizeable investors.

The limited presence of major global investment banks covering Korean equities compounds these issues. In contrast to other Asian markets such as Taiwan and Japan, which benefit from extensive international analyst coverage, Korean stocks predominantly rely on domestic brokerage firms for research, which is often only conducted in Korean. This domestic-centric coverage approach limits global investor visibility and exacerbates informational asymmetries, intensifying undervaluation.

At the end of January 2026, 60% of the KOSPI index had 0 sell-side coverage, and 68% had less than two brokers.[7]

The magnitude of Korea’s valuation discount, combined with limited sell-side research and general market awareness, creates a uniquely rich stock-picking environment, with foreign ownership levels much lower than average.

AVI believes that the election of President Lee in 2025 marks a crucial turning point for the Korean market.

Lee’s Democratic Party of Korea (DPK) holds a commanding majority of 175 seats (out of 300) in the National Assembly, granting a virtually unimpeded legislative pathway until at least April 2028. This essentially makes him one of the most powerful President’s that Korea has ever had.

Learning from the failures of Corporate Value Up in 2024, President Lee’s election campaign explicitly prioritised corporate governance reform, promising legislative amendments to rectify longstanding issues of chaebol dominance, minority shareholder abuse, and low dividends, and he has been quick and effective to start enacting reforms.

The South Korean government has already passed two Commercial Act amendments with significant teeth. The first (July 2025) expanded directors’ fiduciary duty from serving “the company” to serving “the company and all shareholders,” exposing board members to minority shareholder liability. It also mandated electronic shareholder meetings from January 2027 and strengthened the 3% voting cap for audit committee elections. The second amendment (August 2025) introduced mandatory cumulative voting for companies exceeding ₩2 trillion in assets from September 2026, preventing controlling shareholders from unilaterally appointing all directors, and required at least two independently elected audit committee members. In December 2025, dividend income tax reform passed, reducing the top marginal rate from 49% to 30% for qualifying companies which maintain either a 40%+ payout ratios or 25%+ with 10% year-over-year increases through for the last three years. A third amendment mandating treasury share cancellation is also expected to pass in Q1 2026.

AVI’s investment philosophy is grounded in the belief that capital markets frequently misprice complexity, particularly in markets where corporate governance is opaque, asset transparency is low, or conglomerate structures obscure underlying value. We specialise in identifying these inefficiencies, through a bottom-up, research-intensive process that focuses on discovering companies trading at material discounts to intrinsic value. Our investments are typically catalysed by engagement—but always supported by a strong underlying business case that allows us to be long-term holders, regardless of engagement outcomes.

The Korean equity market exemplifies this thesis in practice. The market’s deeply entrenched chaebol structures, pervasive cross-shareholdings, and persistent capital misallocation, create fertile ground for the types of inefficiencies AVI is adept at uncovering, and numerous Korean companies exhibit the hallmarks of our investable universe.

AVI’s Korea strategy is rooted in our long-term commitment to the companies we invest in and our collaborative approach to engagement with management teams.

Our experience in engaging with Japanese companies over the past eight years has taught us that private, respectful, and constructive dialogue often has a greater level success than public activism, and generates a deeper relationship with the management and boards of our portfolio companies. We intend to apply this same approach to Korea, recognising that cultural sensitivity, patience, and alignment with management are critical to achieving lasting results.

We focus our engagement not only on capital efficiency and corporate governance—common angles for activist investors—but also on driving operational improvements that enhance long-term corporate value. Rather than simply calling for share buybacks or higher dividends, we highlight a comprehensive range of improvements across operations, governance, shareholder communications, and capital allocation.

Our ability to engage constructively has been shaped by the success of our Japan engagement strategy, where our thoughtful and long-term approach has been well-received by management teams and reflected in performance.

We bring this same mindset to Korea, believing that by positioning ourselves as an aligned, value-enhancing partner, we can help unlock significant latent value in the Korean market. This method stands in contrast to more aggressive, unsuccessful activism attempts by western investors in Korea historically, and underscores our belief that deep research, cultural awareness, and long-term commitment are key to successful engagement.

Our allocation of over 15% versus the MSCI World ACWI of less than 1% demonstrates the opportunity we see in Korea, and we hope that you, our investors, will join us at this exciting time.

Ross McGarry, CFA, Senior Investment Analyst at Asset Value Investors

February 2026

[1] As at 31 January 2026
[2] All market pricing data sourced from capital IQ as at 31/12/25
[3] Korea Exchange as at 31/12/25
[4] CLSA as at 31/12/25
[5] MSCI Korea Factsheet as at 31/12/25
[6] Factset as at 31/12/25
[7] Capital IQ as at 31/12/25