U.S. Stocks vs. Korean Stocks: Why Don’t Korean Stocks Go Up?

Whether it’s Korean stocks or U.S. stocks, you need to study them. That doesn’t necessarily mean your returns will be proportional to the amount you study, though.

Let’s briefly go back to the mindset we had when we first started investing in stocks.
The first goals or wishes that come to mind are things like “Let’s build a lump sum through investing,” or “Let’s make our money work for us.” They mean the same thing. Whatever the goal, it assumes that we will earn investment returns.

Over time, we open brokerage accounts, learn that a buy order means we’re purchasing and a sell order means we’re selling, and we find out why cash doesn’t become available for withdrawal immediately after we sell a stock.
This is when our goals start to become more concrete. We begin to think about what it actually takes to invest well. We watch YouTube, search online, and look into what “company analysis” really is. But we can’t understand a word of it. There are just too many unfamiliar terms. It’s like studying Spanish for the first time—frustrating and overwhelming. So we decide it’s better to listen to the experts.

Analysts at well‑known financial institutions—names we’ve all heard at least once—kindly tell us their target prices. It’s even free. On YouTube, if we sit through just five seconds of a 30‑second ad before skipping, we see seemingly renowned experts gathered in small groups, telling us which stocks are good. And we just follow along and buy. Most of us have probably done this, and for many, it likely remains a bad memory.

This is where the concept of trust comes in. We simply can’t trust them. It feels like we’ve been robbed. In the end, it seems like the best option is to study on our own. The idea that “you need to study, whether it’s domestic or overseas stocks” arises from this entire sequence of experiences.

How would you feel if you spent the same amount of time on stocks, finance, and the economy, but the returns were different?

This shift has already been showing up in investor behavior for quite some time.
So what is driving this pattern?

It’s because of the so‑called “Korea Discount”, which refers to the persistent undervaluation of Korean stocks.
Do you remember the article we wrote about the financial investment income tax where we mentioned this before?

Currently, around 40% of Korean companies trade below book value, a figure far higher than the U.S. at 2.6%, Japan at 34.7%, and Taiwan at 10.7%.
If they’re undervalued, shouldn’t we just buy them now and wait until they’re fairly valued? That’s a reasonable point, but the real issue is not whether they’re undervalued—it’s whether this undervaluation will ever be resolved.

The Korean market has been stuck in this undervalued state for a long time. If we calculate what prices would look like once it escapes undervaluation (that is, when the price‑to‑book ratio reaches 1.0), stock prices would have to be much higher than they are now.

Among the main reasons that create and sustain the “Korea Discount”, the most representative is corporate governance.
When governance is opaque, the following problems arise.

It’s easier to understand if we think about the used‑car market. In the used‑car market, sellers hold most of the information, which creates a problem of information asymmetry. This prevents buyers from properly assessing the risks of a vehicle, leads to negative experiences like “the performance was worse than I expected,” and results in adverse selection where buyers end up purchasing relatively low‑quality used cars.
The same goes for companies. When information asymmetry prevents investors from assessing risk, they face the same situation. The difference is that, unlike used cars, there is no shortage of alternatives to Korean companies. Instead of adverse selection, investors simply choose not to invest at all.

So is that why? In the United States, it is common to hire executives from outside the company. By bringing in professional managers, you can reasonably expect improvements in management efficiency. Taiwan’s TSMC and Japan’s Hitachi also bring in outside directors to preserve independence.

By contrast, in Korea you often see cases where transparency is not sufficiently observed. According to the “2023 Board of Directors Trend Report” published by the Samil PwC Governance Center, only an average of 34% of 267 non-financial KOSPI-listed companies separate the roles of CEO and board chair.
This means the CEO who needs to get an agenda item approved is also serving as the board chair who sets that agenda in the first place.

Cross-shareholding further contributes to making corporate governance opaque. If you look only at the controlling shareholders’ stakes:
Elon Musk owns 12.87% of Tesla, Jensen Huang owns 3.5% of Nvidia, and Lee Jae-yong owns 1.63% of Samsung Electronics.

But 8.51% of Samsung Electronics is owned by Samsung Life Insurance, and 5.01% by Samsung C&T.
19.34% of Samsung Life Insurance is owned by Samsung C&T, and 10.44% by Lee Jae-yong.
19.06% of Samsung C&T is owned by Lee Jae-yong…

A circular shareholding structure has the advantage of helping defend management control, but it does not protect the rights and interests of outside investors. Yet trying to unwind it is no easy decision either, because the process can hurt minority shareholders or trigger concerns about capital flight if assets are sold overseas. That is the reality.

That is why even the Financial Services Commission, which should be regulating this, is hesitant to step in aggressively.
Even in its “Guidelines for Enhancing Corporate Value,” the regulator implicitly acknowledged that domestic companies need to address their structural issues, but in the end it merely relied on voluntary corporate participation and took a cautious stance, saying that “a long-term approach is needed.”

Between 2007 and 2009, the share of U.S. companies that separated the CEO and board chair roles was below 40%, similar to Korea today.
That figure has steadily risen, reaching about 59% as of 2023. The U.S. has also put in place robust regulatory tools on cross-shareholding, such as imposing double taxation on companies or individuals that try to create synthetic capital with relatively little money. This is why, even though there is no outright legal ban on circular shareholding in the U.S., there are virtually no companies that use it.

You cannot judge everything based on a single factor, but one thing is clear: corporate governance in U.S. equities has improved, and valuations have risen relative to book value. That means they are winning the votes of many investors.

Some might say, “By the time Korea finally escapes its undervaluation, stock prices will already have gone up a lot,” and therefore prefer domestic equities.
I am not so sure. Which companies are you supposed to buy now and just wait for the discount to disappear? The very reason they are cheap is that it is hard to assess the risks.

Investing in U.S. stocks is not an act of cultural subservience; it is a way of pursuing a healthier financial system. After all, if you put in the same amount of time and effort but end up with very different results, it is hard not to feel shortchanged.