Foreign Investors See Clear Change in Korean Stock Market: “Capital Market Reforms Must Continue”

Interview with Nana Li, Member of ICGN Global Policy Committee

Corporate Governance Reform, Improved Capital Allocation, and Minority Shareholder Protection

Consistent Progress Needed to Resolve the "Korea Discount"

There is a growing assessment that the Korean capital market is showing clear changes from the perspective of foreign investors. However, analysts believe that resolving the so-called "Korea Discount"—the undervaluation of the Korean stock market—will not be easy unless the policy focus on governance reform, improved capital allocation, and minority shareholder protection is sustained and translated into tangible changes at the corporate level.

Nana Li, Member of the ICGN Global Policy Committee, recently shared this diagnosis of the Korean capital market during an interview with The Asia Business Daily in Yeouido, Yeongdeungpo-gu, Seoul. The International Corporate Governance Network (ICGN) is a global investor network that sets international standards for corporate governance and stewardship codes (guidelines for institutional investors on exercising voting rights), with over 300 asset management and advisory firms from 40 countries participating as members. Li is also an institutional investor serving as Head of Sustainability and Stewardship for Asia Pacific at Impax Asset Management Hong Kong.

Li said she has clearly seen improvements in the Korean capital market over the past few years. She noted a marked shift in the attitude of regulatory authorities toward governance issues, as well as a growing effort to address these issues more proactively. She commented, "In particular, the Value-Up Program has played a significant role in putting the valuation gap of Korean companies at the forefront."

She also observed that, thanks to such policy momentum, communication between investors and companies has become much more active. Li recalled, "About a decade ago, even when I visited the headquarters of a major Korean conglomerate as an institutional investor, I was turned away without meeting anyone. Now, these companies have dedicated sustainability departments and board-level committees, making discussions much more active. While there are still places that have not changed, it is clear that many Korean companies are improving."

However, she still characterized the Korean market as being in a "transitional period." She diagnosed that the influence of controlling shareholders remains strong and that there are still many unresolved governance issues, indicating that structural challenges persist.

Li identified governance reform as the single most critical task to unlock the potential of the Korean capital market. She said, "While Korea is making progress on many fronts, from a global investor's perspective, the most important thing is the consistency of various disclosure data and the substance of actual improvements. Compared to other major advanced economies, Korea still has relatively weak governance, and that is a key reason why many Korean companies receive low valuations." In her recently published book, "How to Read Sustainability in Asia," she also pointed out that improving governance is the foundation for the sustainable development of the Korean capital market.

She stressed that, above all, policy consistency is crucial for governance reform. She cited the Japanese capital market as an example. Japan introduced the Stewardship Code in 2014, becoming the first in Asia to do so, and carried out reforms for over a decade under a strong strategy driven by the Government Pension Investment Fund (GPIF). Li warned, "Overseas institutional investors want to see changes in corporate behavior and for those changes to translate into actual increases in corporate value. If various reform policies are only observed formally and companies respond with superficial answers for compliance purposes, there will be no substantive change."

She also called for a more active role from domestic institutional investors. She noted, "While the National Pension Service (NPS) is demonstrating leadership by engaging in various activities, most institutions remain passive."

Ultimately, her conclusion was clear. Although the Korean capital market is undoubtedly improving, institutional changes must lead to actual changes in corporate behavior in order to eliminate the Korea Discount. Li emphasized, "When governance reform, improved capital allocation, protection of minority shareholders, and consistent regulatory enforcement all work together, only then can the Korean market’s potential be properly evaluated."

Nana Li, Head of Sustainability and Stewardship for Asia-Pacific at Impax Asset Management Hong Kong and Member of the ICGN Global Policy Committee

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