Why Korean Stocks Are Undervalued — How Shareholder Returns Could Close the Gap

Two companies. Similar earnings, similar assets. One is listed in the US, one in Korea. The American stock trades at four times its book value. The Korean stock trades at below book value — meaning the market values it less than the sum of its parts. This gap has a name: the Korea discount. And one of its biggest drivers is how Korean companies handle their profits.

What Is the Korea Discount?

The Korea discount refers to the persistent tendency of Korean-listed companies to trade at lower valuations than comparable companies in other markets. The clearest way to see it is through the price-to-book ratio (P/B) — a measure of how much investors are willing to pay relative to a company's net asset value. Korea's overall market P/B sits around 0.9x, meaning investors are paying less than the value of the underlying assets. Compare that to the US at around 4x and Japan at roughly 1.4x. Korean companies aren't necessarily earning less — they're just valued less, and the structure of how they handle profits is a major reason why.

What Are Shareholder Returns? Dividends and Buybacks Explained

Shareholder returns are how companies give profits back to the people who own the stock. There are two main ways. Dividends are regular cash payments — a company distributes a portion of its earnings directly to shareholders, typically quarterly or annually. As long as you hold the stock, you receive the payment. Share buybacks (or repurchases) work differently: the company goes into the open market, buys its own shares, and then cancels them. This reduces the total number of shares outstanding, which means each remaining share represents a larger slice of the company. Korean companies have historically kept a large portion of profits sitting on the balance sheet rather than distributing them — a habit that made Korean stocks less attractive to global investors who expect consistent returns.

Why Do Buybacks Boost Stock Value?

Here's a simple example. Imagine a company worth $1 million with 100 shares outstanding — each share is worth $10,000. The company buys back 10 shares and cancels them, leaving 90 shares. The company is still worth $1 million, so each share is now worth roughly $11,100. Every remaining shareholder's stake just became more valuable without them doing anything. This is why buybacks are considered a form of returning value to shareholders, just like dividends but in a different form. There are signs of progress on this front. Major companies like Samsung Electronics and SK Hynix have meaningfully increased their dividends and buyback programs in recent years, and foreign investor sentiment toward Korean equities has improved. But the gap with global peers remains wide: Korean companies on average pay out about 30% of earnings as dividends, compared to over 80% in the US. The Korean government launched a 'Corporate Value-up Program' to encourage better shareholder returns, but structural change moves slowly — actual behavior has to follow the policy.