Amidst a landscape characterized by stagnant corporate governance and investment hesitancy, a dynamic movement is emerging in South Korea as small investors rally to transform the country’s corporate landscape. This grassroots surge of retail investors, bolstered by social media platforms and specialized shareholder applications, aims to revitalize Korea’s $1.9 trillion stock market, which has often lagged behind its regional counterparts in valuation metrics.
Over the past two years, platforms like Act have garnered over 110,000 users, allowing amateur stock traders to forge connections and share insights. This communal effort is fueled by a widespread sentiment that the nation’s financial institutions fall short of global standards, compelling companies to be held accountable for their actions. Younghee Won, a 66-year-old art instructor, encapsulated this sentiment, stating, “Online platforms allow our anger to translate into action.”
This collective action is reshaping the corporate governance landscape in South Korea, as businesses come under increasing scrutiny from not only retail investors but also influential politicians, regulators, and foreign investment funds. With such mounting pressure, the notion of the so-called “Korea discount” — a term used to describe the market’s undervaluation in relation to global peers — is being addressed head-on. The implications for the stock market are significant, as recent developments suggest a reinvigoration of investor interest and a potential shift in corporate practices.
The results of the recent presidential election signal a noteworthy pivot in the political landscape that seeks to empower investors. Lee Jae-myung, the victorious left-leaning candidate, pledged to enhance corporate governance, mitigate stock manipulation, and set ambitious targets for the Kospi index, eyeing a level nearly 80% higher than its current standing. As the Kospi index entered a bull market following Lee’s electoral win, it saw an increase of approximately 1.7% in early Asian trading.
Underlying this market optimism is a noted influx of foreign investments. Recent analysis from Goldman Sachs Group indicated an upgraded position on Korean stocks, moving from neutral to overweight, driven by expectations for capital market reforms. This adjustment highlights an emerging sense that the South Korean market may be primed for transformation, attracting significant international capital.
The retail investor demographic now accounts for nearly 30% of the South Korean population, a figure that has surged in part due to a trading boom during the COVID-19 pandemic. The proliferation of new accounts has also catalyzed the formation of online communities, where individuals engage in stock discussions and strategize collective actions. In the latest annual general meetings, shareholders put forth a record-high 168 proposals, a staggering 80% increase over previous years. This surge includes 78 proposals aimed specifically at management, focusing on matters like executive appointments and dismissals.
“The trend indicates that minority shareholders are increasingly desiring a proactive role in corporate governance,” stated Nameun Kim, a deputy director at the AJU Research Institute of Corporate Management. The motivations driving these investors have evolved. Whereas past interests primarily focused on financial returns, a growing faction is now advocating for inclusion in management decisions, seeking to install preferred directors on corporate boards.
While successes for these small investors have primarily been witnessed among smaller companies with market valuations of less than $1 billion, noteworthy instances of shareholder activism are beginning to emerge. Medical company Oscotec Inc., for example, canceled plans to reappoint its chief executive following pressure from investors, while biotechnology firm Amicogen Inc. and textile company DI Dong Il Corp. appointed new auditors in response to small investor demands.
Despite their growing influence, many companies still demonstrate resistance to these activists. Anecdotal evidence illustrates the challenges faced by individual investors striving for greater transparency. One schoolteacher, identifying only by his surname Kim, revealed his commitment to engage with fellow shareholders, sending out 400 letters to rally support for collective action. His initiative drew over 120 interested investors, emphasizing the often painstaking nature of shareholder activism in the current environment.
This grassroots activism in South Korea presents a distinct contrast to movements seen in the United States, such as the meme-stock phenomenon linked to Reddit’s WallStreetBets forum. Platforms like Act and Hey Holder require investor verification based on actual ownership of shares, ensuring that discussions involve participants with tangible stakes.
Sangmok Lee, the CEO of Act, articulated a unique perspective on the nature of engagement among users of the platform, likening their involvement to that of “fans” of the companies they hold. “Fans engage in shareholder activism out of love for the company, much like how parents use discipline out of love,” he noted, suggesting a more emotionally driven approach than seen in traditional investing paradigms.
The long-standing “Korea discount” has roots in multiple factors, including concerns over corporate governance practices, complex cross-shareholding structures, and a perceived disconnect between the interests of executives and shareholders. While small investors alone may not be sufficient to address these challenges, they now enjoy increasing support from institutional players. Local activist investment funds, like Align Partners Capital Management, are gaining traction, contributing professional expertise to the grassroots efforts. Additionally, foreign investment firms are expanding their portfolios within Korea, motivated by the growing potential for market change.
Seth Fischer, the founder and chief investment officer of activist fund Oasis Management, expressed optimism regarding the impact of recent political shifts, asserting that ensuing changes could lead to meaningful corporate reforms. However, he tempered expectations, cautioning that significant work remains to be done in transforming Korea’s corporate sector.
The most considerable backing for these small investors may lie in the actions of new political leadership. Ahead of his election win, Lee Jae-myung’s public commitments resonated with investors, promising to advocate for their interests, enhance transparency, and push companies to appoint directors who represent minority shareholders. His vision aims to redefine the narrative surrounding the “Korea discount,” seeking to achieve a premium that reflects improved corporate governance and investor relations.
As this transformative movement continues to unfold, South Korea’s evolving investment landscape might soon find itself characterized by enhanced corporate accountability, a more empowered investor base, and potentially, newfound respect in global market comparisons. The interaction between political will, corporate governance, and retail investor activism presents a unique case study, signaling a pivotal moment in the trajectory of South Korea’s financial future.