The Firm Says Korea Discount Has Narrowed on Buybacks, Dividends, and Value-Up Participation
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Global asset manager Franklin Templeton analyzed on April 27 that governance reform and improved capital allocation are necessary to resolve the Korea discount (undervaluation). It pointed out that while artificial intelligence (AI) memory infrastructure and defense exports have increased the investment attractiveness of the Korean market, a continuous re-rating of the stock market requires changes in corporate behavior first.
Franklin Templeton positively evaluated that the Korea discount is being resolved, citing the visualization of shareholder return policies, the expansion of share buybacks, a slight increase in dividends, and expanded participation in the Value-up (corporate value enhancement) program as evidence of tangible changes. However, it diagnosed that the discount has not been completely resolved. The report emphasized that governance reform and improved capital allocation are the drivers that will lead to a continuous valuation re-rating, adding that the market will evaluate Korea based on repeated corporate actions as well as the government’s policy will.
Dina Ting, Head of Global Index Portfolio Management at the Franklin Templeton Exchange Traded Fund (ETF) division said, “The surge in energy prices due to the Iran conflict highlighted Korea’s vulnerabilities, but this is closer to a manageable business cost rather than a structural limitation.” She continued, “As competitiveness in the High Bandwidth Memory (HBM) sector aligns with a defense export cycle that is growing to an economically meaningful scale, the Korean market has acquired two growth drivers,” and explained, “This rally will be more sustainable than in the past.”
Furthermore, Ting emphasized, “The Korea discount has merely decreased, not completely disappeared,” and that “the core driver for continuous re-rating is neither AI nor defense, but governance and capital allocation.” She added, “Early signals of changes in corporate behavior are encouraging, but it must be noted that the market does not trust the willing without action.”
Jung Suk-yee
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