South Korean Stocks See Surge in Foreign Investment Amid Regulatory Reforms

South Korean stocks have surged 33% in 2025, surpassing $2 trillion in market value for the first time in three years. Overseas funds, which dumped South Korean stocks for nine straight months, are now piling back into the market. Reforms aimed at reducing the power of family-run conglomerates, or chaebols, have contributed to the culture shift. Net inflows from foreign funds have crossed $3 billion in July alone.

The South Korean stock market has emerged as a top performer among global markets this year, drawing significant interest from foreign investors. This surge can be attributed to a series of aggressive regulatory reforms aimed at enhancing valuations and empowering minority shareholders. Recently, policymakers approved crucial legal changes requiring board members to be accountable to all shareholders. Upcoming reforms include improving voting systems for board elections and reducing treasury stock holdings, targeting the control of the country's numerous family-owned conglomerates, known as "chaebols" [1].

Investors from Wall Street to London are increasingly focusing on South Korea. After nine consecutive months of selling Korean stocks until April, foreign funds are now returning in large volumes. Since June, strategists from global banks like Goldman Sachs, JPMorgan, Citigroup, and Morgan Stanley have upgraded their ratings on South Korea. The benchmark Korea Composite Stock Price Index (KOSPI) rose by 33% in 2025, pushing the market capitalization beyond $2 trillion for the first time in three years. In July alone, net inflows from foreign funds exceeded $3 billion, surpassing the total foreign purchases of the previous two months combined [1].

South Korean authorities are seeking to replicate the success seen in Japan, where a push for corporate reforms helped boost valuations and spur a world-beating equity rally. Optimism that the nation is serious about tackling the so-called "Korea discount" has grown since newly elected President Lee Jae Myung made raising governance standards and improving stock-market returns one of his top priorities [2].

Net inflows from foreign funds have crossed $3 billion in July alone. That’s more than their combined purchases in the previous two months. "We’re seeing a big change in the corporate governance," said Joshua Crabb, head of Asia Pacific equities at Robeco Hong Kong Ltd., noting more capital discipline, buybacks, and dividends. "This does not require a great global environment. These are things that are almost like a bit of self-help" [2].

The upcoming round of commercial code revisions includes mandating a cumulative voting system for listed firms to promote board diversity. Cumulative voting has become a cornerstone of the ruling Democratic Party’s corporate governance agenda. Another proposal that will be considered is to cap the number of audit committee members that major shareholders can nominate [2].

The issue of treasury shares, which can be transferred by companies to friendly parties, is also a key focus. South Korean authorities are discussing various options, including a model similar to that of Germany’s, which requires companies to sell treasury shares that exceed 10% of the capital stock within three years of purchase. "If we’re aiming for Kospi 5,000, I believe treasury share cancellation is essential," said Seokkeun Ha, chief investment officer at Eugene Asset Management [2].

The South Korean stock market's impressive performance in 2025 is a testament to the effectiveness of the ongoing regulatory reforms. As the market continues to attract foreign investors and the reforms progress, the potential for further growth and increased valuations remains strong.

References:
[1] https://www.gurufocus.com/news/3007254/south-korean-stock-market-gains-attention-amid-regulatory-reforms?r=4bf001661e6fdd88d0cd7a5659ff9748
[2] https://finance.yahoo.com/news/global-money-chases-world-hottest-000000870.html