Asian favorite: how to capitalize on the reforms of South Korea's new president

South Korea's main stock index, the KOSPI 50, has gained more than 28% since the start of 2025, becoming one of the fastest-growing in the world. The index has significantly outpaced the U.S. S&P 500, which is up 3.58% YTD, and Asia's Hang Seng and Nikkei 225 indices - the former adding 20.52%, the latter down 2.4%, respectively.

The South Korean index started its main growth in June this year - it has already added 17.3% since the beginning of the month. Over the past two days, the South Korean index has twice updated its annual highs. On June 24, it topped Asian markets after U.S. President Donald Trump announced that Israel and Iran had agreed to a cease-fire. The South Korean market reacts more strongly to global news, whether good or bad. The reason is that it has a large share of technology companies, which are risky assets - they are highly dependent on the stability of supply chains in AI, cloud technology and automobile manufacturing.  

But there is another fundamental reason for the rise - South Korea's stock market is experiencing a significant rebound after Lee Jae-myung won the presidential election in early June this year. 

In the first days after taking office, he visited the country's stock exchange and outlined the «KOSPI 5,000» plan, promising to bring the index to that mark during his term. At the time, this meant doubling the index. How was he going to accomplish this?

Among the already announced measures is the introduction of a fiduciary duty of top managers to shareholders. The president wants to force the management of companies to act in the interests of shareholders. His plan also includes strengthening the role of minority shareholders in appointing top managers and encouraging dividend growth;

The plan, according to the new authorities of the country, should attract additional foreign capital and revitalize the activity of private investors, for whom the stock market of South Korea remains unattractive due to the opacity of the ownership structure in the largest corporations.

For many years it has been «under the curse of the Korean discount». The market capitalization of most South Korean companies is below their book value, and their stocks are noticeably cheaper than their peers from other regions. The price-to-book value (P/B) ratio of KOSPI companies has until recently been well below 1, compared to about 3.5 for the MSCI World benchmark. At the end of 2024, the P/B ratio of the South Korean index was 0.84, an all-time low. 

A key reason for the presence of the «Korean discount» is that the largest businesses in the country are family-owned conglomerates known as chaeboli. They emerged in the postwar years and have gradually consolidated entire industries under their management, from electronics and automobile manufacturing to petrochemicals and financial services. These groups are run by founding families who retain control through opaque, multilevel networks of cross-shareholdings within the conglomerate.

The structure of chaebols gives rise to serious corporate governance problems. Company management often makes decisions in the interests of a narrow circle of individuals, disregarding the rights of minority shareholders. Often they even artificially undervalue securities, which allows them to buy shares from minority shareholders at a significant discount. In addition, this allows them to avoid paying inheritance tax, which is one of the highest in the world;

These low valuations of Korean securities make it difficult for companies to raise capital and reduce interest from long-term investors. Retail investors prefer real estate or foreign assets.

South Korea's previous president, Yun Seok-yol, also tried to combat the «Korean discount» by announcing a sweeping reform program in January 2024. One of them, the Corporate Value-Up Program, was aimed at encouraging as many companies as possible to pay dividends and increase dividends, and to conduct share buybacks from minority shareholders at fair prices. It also tried to increase the transparency of company disclosures. However, as early as December 2024, it became apparent that these positive ideas had broken over the harsh reality. Out of more than 100 companies, only a handful have published concrete plans to increase asset value. Opposition in the government sabotaged a bill for additional tax incentives for program participants. Influential chaebols also began resisting the new reform because they feared a loss of control in favor of small shareholders. Eventually in December, Yoon Seok-yeol's conservative party failed to reach an agreement with the opposition on the draft 2025 budget, after which he imposed martial law in the country, which he himself lifted six hours later. A few months later, the president was impeached;

But now investors believe South Korea's new president will be able to turn things around. Just weeks after his election victory and the announcement of the new reform, the P/B ratio reached a mark of 1 (it happened on June 20), when the KOSPI index surpassed the 3,000-point level;

The fact is that as recently as last year the Democratic Party retained the majority of seats in the country's parliament. And now the leader of the party representing the majority in the parliament has become the president of the country. Together they control the executive branch and the legislative branch, which greatly increases the chances of passing tough laws.

Yet risks remain, write the Financial Times. The main ones are the stubbornness of the chaebols and the country's demographic crisis, which almost always leads to a slowdown in the economy. This could hamper the new president's plans. 

Which South Korean companies are advised to pay attention to by investment banks? 

On June 12, analysts at BofA Global Research reiterated a «buy» recommendation on shares of defense and aerospace company Hanwha Aerospace and maintained a target price of 1.13 million South Korean won at the closing price of 856,000 won on June 25. The upside potential is 32%. 

Analysts at the bank said that after the election of a new president in South Korea, the country will pay more attention to supporting arms exports in order to create jobs and develop the economy. Hanwha Aerospace is hoping for more government support, including through credit expansion and preferential financing from state banks.

Analysts at BofA note Hanwha's planned cooperation with Saudi Arabia - worth more than 36 trillion won. The country may purchase more than 800 infantry fighting vehicles and 180 K9 howitzers by 2035, which is more than Hanwha's current order book. The two sides plan to sign a framework cooperation agreement in the second half of 2025, the bank said.

For North America, the company is considering a «company owned, company operated» format, involving an investment of about 1 trillion won (about $730 million) to establish a joint venture to produce and maintain artillery systems in the United States. The company is particularly focused on Canada, which is seeking to increase its own defense spending to meet NATO requirements. For Hanwha, that could mean the possibility of additional contracts, beyond the submarine purchase already under discussion, BofA said. 

Morgan Stanley wrote in a June 19 report that it expects Samsung Electronics' stock to rise to 70,000 won. This is about 14% above the closing price on June 25. The rating is «above market». 

Samsung has completed the development of HBM4 memory chips and is participating in the supplier selection process for Nvidia Rubin graphics cards. Now the qualification process is underway - Nvidia is deciding which chips are more suitable for it. It is expected to decide on its choice in August-September 2025. The investment bank notes that Samsung has previously started supplying these chips to AMD and Broadcom, which indicates a high probability of cooperation with Nvidia as well. And this, according to the investment bank, could be a driver of growth in the company's shares in the second half of 2025. 

Morgan Stanley analysts consider three scenarios. In the base case (with a 60% probability) Samsung receives Nvidia's approval to supply chips in the third quarter of 2025 and becomes one of the key memory suppliers for Rubin gas pedals. In the second scenario (30% probability), HBM4 qualification is delayed, causing Samsung to not receive significant order volumes from Nvidia. The third, unlikely scenario (10%) assumes that HBM4 qualification fails and Samsung returns to producing memory chips using older technology;

In case of successful qualification, analysts forecast Samsung's share price to rise by 20-40%, which corresponded to a level of 71 thousand to 83 thousand won per share at the time of the note's release. In case of deferred qualification, the current price level is expected to remain around 60 thousand won. If it fails, the stock may fall by 5 -10%.

According to LSEG, out of 39 analysts, 34 recommend buying and 5 recommend selling the company's stock. The average target price is 73.47 thousand won, which implies a 21.4% increase from the closing price on June 24.

Analysts at HSBC on June 17 raised their target price on shares of SK Hynix, one of the world's largest memory chip makers, from 340,000 to 360,000 Korean won and maintained a «buy» rating. The upside potential is just over 25% to the closing price on June 25. 

The British investment bank expects the company to report better-than-expected earnings for the second quarter of 2025 on July 29. HSBC believes revenue will increase from 17.7 trillion won in the first quarter of 2025 to 20.8 trillion won in the second quarter. They believe that growth will be fueled by increased sales of DRAM chips, strong demand for HBM memory (for AI chips and graphics cards) and a general increase in memory chip prices. The investment bank also notes that China's state-owned data centers plan to increase capital expenditures by 82%, which will strengthen demand for server memory chips. According to data from TradingView, the market consensus for revenue is 20.3 trillion won. 

According to LSEG, a total of 40 analysts give forecasts on SK Hynix shares. Of them, 37 recommend buying and three recommend holding the stock. The average target price is 288.5 thousand won.

Bank of America maintained a «buy» rating on shares of LG Energy Solution, one of the largest lithium-ion battery makers, in a report on June 15. BofA's target price is 500,000 won. This implies an upside of more than 67% to the closing price on June 25. 

According to BofA analysts' estimates, the company's EBITDA may grow at an average annual rate of about 57% through 2026, thanks to the increase in production capacity and a stable order book. Analysts pay attention to the cautious approach of the Korean company's management towards the market of batteries for electric vehicles. Despite expectations of demand reduction in the U.S. by about 10% due to an increase in the average retail price and the introduction of U.S. duties, the company plans to reduce capital expenditures by 20-30% compared to 2024 levels. Investment Bank believes that the launch of the second phase of its battery manufacturing plant in Michigan is also contributing to the company's competitiveness. This will increase capacity from 10 to 25 GWh. In addition, this way the company will be able to avoid US duties on the US market and win the price fight with Chinese competitors;

Analysts at Bank of America maintained a «buy» rating on shares of Hyundai Motor, the country's largest automaker, in their report dated June 9. The investment bank forecasts the company's shares to rise to 324,000 won. This implies a potential upside of more than 49% to the closing price on June 25.  

According to BofA, Hyundai has increased retail sales of electric cars in Europe in the first half of 2025: in May alone, sales reached 7.2 thousand vehicles, up 49% year-on-year. The main driver of growth was the Casper model, launched in December 2024.

Overall, the share of South Korean automakers in the European electric vehicle market rose to 8.4% in the first quarter of 2025. For comparison, in the first quarter of last year it amounted to 7.1%, follows from the materials of Bank of America. Its analysts believe that this is due to weakening positions of European automakers amid competition with Chinese and Korean companies.

In the long term, the bank calls the catalysts for the growth of the company's shares, including the growth of the market share of electric cars in Europe and the launch of a new platform of software-defined cars in 2026 (when the main role in the car will be played by software);

This article was AI-translated and verified by a human editor