From ugly duckling to ‘worldwide handsome’: Korea’s Value-Up ambition

As with any investment, your capital is at risk.

When Jin from the K-pop phenomenon BTS was asked to introduce himself to international audiences, he grinned and said, “Hi, I’m worldwide handsome, you know?”

In contrast, for many years South Korea’s stock market has been an ugly duckling, handicapped by the “Korea Discount”. The discount reflects persistent weaknesses in corporate governance, cautious capital allocation, and the dominance of family-controlled conglomerates, or chaebols.

Inspired by Japan’s decade of governance reforms, in February 2024, the South Korean government launched the Corporate Value-Up programme to tackle the longstanding undervaluation of Korean equities. The initiative aims to nudge companies towards higher capital efficiency and stronger shareholder engagement, while recognising Korea’s distinct structural and political constraints.

The result is that the Korean stock market is currently the best-performing major market in the world. Much of this has been driven by the anticipation of the Value-Up programme. In truth, as growth investors, this has presented us with a dilemma. Generally, it is the companies with the weakest governance and the lowest growth that have rallied the most and these don’t fit easily in our wheelhouse. However, we have scoured the market and have found one or two companies that fit our growth and quality hurdles, but which should also benefit from the tailwind of the Value-Up programme.

How the Value-Up programme works

The programme rests on three elements.

First, it offers incentives for companies that publish and execute credible value-enhancement plans, including preferential treatment by the exchange and higher visibility.

Second, it adds tools for investors, most notably the Korea Value-Up Index, intended to spotlight firms that commit to better capital discipline and disclosure.

Third, it builds a framework for multi-year implementation so that reforms become routine rather than one-off responses.

In May 2024, the Financial Services Commission issued guidelines asking companies to set multi-year targets, disclose metrics such as return on equity (ROE) and dividend yield and provide annual progress updates. The emphasis on voluntary, open-ended disclosure marks an attempt to shift away from Korea’s traditionally prescriptive, rules-based approach.

Korea’s market is large by global standards but trades at lower valuation multiples than peers in the United States, Japan, and Europe. Several features contribute: concentrated control within chaebols, which can sideline minority shareholder interests; low payout ratios and steep inheritance taxes that encourage cash hoarding; and weak board independence, with many “outside” directors lacking operating experience and a willingness to challenge management.

The programme seeks to chip away at these issues by elevating transparency, rewarding capital return, and creating reputational and market pressure to participate. Companies that publish Value-Up plans can receive Korea Exchange fee exemptions, priority at domestic and international investor events, and eligibility for government-endorsed recognition.

Lessons from Japan

Japan’s experience provides a template for what steady pressure can achieve. Since 2014, the Stewardship and Corporate Governance Codes, combined with tighter Tokyo Stock Exchange listing standards, pushed Japanese companies to unwind cross-shareholdings, bring in independent directors, and target higher returns.

By 2024, a majority of Tokyo Stock Exchange (TSE) Prime companies had disclosed capital-efficiency plans and the equity market reached record highs. The Korean lesson is that durable change requires aligned incentives from regulators, the exchange, and large asset owners. In this regard, the National Pension Service could play a role similar to Japan’s Government Pension Investment Fund (GPIF) by using the Korea Value-Up Index when allocating capital, reinforcing market-based discipline.

Political turbulence late in 2024 briefly clouded the reform story, but the June 2025 snap election brought President Lee Jae-myung to office on a platform that embraced the Value-Up agenda. In July 2025, amendments to the Commercial Act were approved to require directors to balance corporate and shareholder interests, mandate electronic shareholder meetings for large-cap issuers, and strengthen cumulative voting to empower minority investors.

Material challenges remain. Chaebols may resist reforms that dilute control and the programme’s voluntary nature could produce uneven adoption. Political cycles can blunt momentum and shifting corporate culture from control-first to shareholder-centric will be a slow process. The impact of the Korea Value-Up Index ultimately hinges on adoption by large asset owners and the absence of concrete tax incentives in the 2024 guidelines provides few near-term carrots to incentivise them.

Even so, the initiative aligns with a broader push to reallocate capital, raise productivity, and attract foreign investment. If the Financial Services Commission, Korea Exchange, and National Pension Service can coordinate sustained pressure – and if companies deliver tangible improvements in capital efficiency and disclosure – the Korea Discount can narrow.

Not every company will participate or benefit equally, but firms that embrace transparent communication, disciplined balance sheets, and consistent shareholder returns are positioned to lead the market’s next phase. In that sense, the Value-Up programme is less a single policy than a long-duration process: gradually replacing opacity and excess conservatism with accountability, efficiency and durable investor trust.

Hyundai’s Value-Up moment

In June 2025, three of the team went to South Korea for two weeks. On this trip they met with about 35 companies, former board members, university professors, local activist investors, as well as other local fund managers.

In looking for companies we could honourably own as growth investors, we identified one or two companies in the Hyundai Group that are good-quality businesses at attractive valuations. Under ES Chung’s leadership, Hyundai has proved to be the most progressive of the chaebols, yet could still benefit from the Value-Up programme.

For example, this year, the auto parts business Hyundai Mobis’ compensation committee was reorganised so that it consists solely of independent directors. Since last year, logistics business Hyundai Glovis set a midterm to long-term target for return on equity at over 15 per cent. If these developments continue, perhaps, in time, Hyundai companies will also be considered ‘worldwide handsome’ by investors.

Important Information

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in November 2025 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

Potential for Profit and Loss 
All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated. 

The images used in this communication are for illustrative purposes only.

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.

Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK. 

Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.

Financial Intermediaries
This communication is suitable for use of financial intermediaries. Financial intermediaries are solely responsible for any further distribution and Baillie Gifford takes no responsibility for the reliance on this document by any other person who did not receive this document directly from Baillie Gifford.

Europe
Baillie Gifford Investment Management (Europe) Ltd (BGE) is authorised by the Central Bank of Ireland as an AIFM under the AIFM Regulations and as a UCITS management company under the UCITS Regulation. BGE also has regulatory permissions to perform Individual Portfolio Management activities. BGE provides investment management and advisory services to European (excluding UK) segregated clients. BGE has been appointed as UCITS management company to the following UCITS umbrella company; Baillie Gifford Worldwide Funds plc. BGE is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co. Baillie Gifford Overseas Limited and Baillie Gifford & Co are authorised and regulated in the UK by the Financial Conduct Authority.

Hong Kong
Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford Overseas Limited and holds a Type 1 license from the Securities & Futures Commission of Hong Kong to market and distribute Baillie Gifford’s range of collective investment schemes to professional investors in Hong Kong. Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 can be contacted at Suites 2713-2715, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. Telephone +852 3756 5700.

South Korea
Baillie Gifford Overseas Limited is licensed with the Financial Services Commission in South Korea as a cross border Discretionary Investment Manager and Non-discretionary Investment Adviser.

Japan
Mitsubishi UFJ Baillie Gifford Asset Management Limited (‘MUBGAM’) is a joint venture company between Mitsubishi UFJ Trust & Banking Corporation and Baillie Gifford Overseas Limited. MUBGAM is authorised and regulated by the Financial Conduct Authority.

Australia
Baillie Gifford Overseas Limited (ARBN 118 567 178) is registered as a foreign company under the Corporations Act 2001 (Cth) and holds Foreign Australian Financial Services Licence No 528911. This material is provided to you on the basis that you are a “wholesale client” within the meaning of section 761G of the Corporations Act 2001 (Cth) (“Corporations Act”). Please advise Baillie Gifford Overseas Limited immediately if you are not a wholesale client. In no circumstances may this material be made available to a “retail client” within the meaning of section 761G of the Corporations Act. This material contains general information only. It does not take into account any person’s objectives, financial situation or needs.

South Africa
Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.

North America 
Baillie Gifford International LLC is wholly owned by Baillie Gifford Overseas Limited; it was formed in Delaware in 2005 and is registered with the SEC. It is the legal entity through which Baillie Gifford Overseas Limited provides client service and marketing functions in North America. Baillie Gifford Overseas Limited is registered with the SEC in the United States of America.

The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission ('OSC'). Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories.

Israel
Baillie Gifford Overseas Limited is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755-1995 (the Advice Law) and does not carry insurance pursuant to the Advice Law. This material is only intended for those categories of Israeli residents who are qualified clients listed on the First Addendum to the Advice Law.

Singapore
Baillie Gifford Asia (Singapore) Private Limited is wholly owned by Baillie Gifford Overseas Limited and is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence to conduct fund management activities for institutional investors and accredited investors in Singapore. Baillie Gifford Overseas Limited, as a foreign related corporation of Baillie Gifford Asia (Singapore) Private Limited, has entered into a cross-border business arrangement with Baillie Gifford Asia (Singapore) Private Limited, and shall be relying upon the exemption under regulation 4 of the Securities and Futures (Exemption for Cross-Border Arrangements) (Foreign Related Corporations) Regulations 2021 which enables both Baillie Gifford Overseas Limited and Baillie Gifford Asia (Singapore) Private Limited to market the full range of segregated mandate services to institutional investors and accredited investors in Singapore.

174014 10057857