TOKYO – South Korea is taking Milton Friedman’s “never let a crisis go to waste” edict to new heights — literally.
In his 1962 book “Capitalism and Freedom”, the Nobel laureate argued that emergencies are the perfect moment to implement destabilizing but necessary reforms — when everyone is off balance. Case in point: the Iran war. President Lee Jae Myung is taking that strategy to heart as he works to raise Korea’s financial standing and eliminate the “Korea discount.”
Lee said that “at times like this, resolving the necessary measures and reform tasks is the way to prepare for a new start,” Lee said on March 18 at a meeting to build a “capital market strong in crisis and trusted by the people.”
The plan, Lee explained, is “to review measures responding to the recent increase in financial market volatility, while also discussing fundamental ways to improve the capital market’s underlying structure by turning the crisis into an opportunity.”
This month’s disorientation enabled Seoul authorities to move to ban duplicate listings in a single market by holding companies and their subsidiaries. Kim Dong-won, an analyst at KB Securities, noted that duplicate listings account for 20% of total Korean market capitalization. That’s 400 times the US market, 10 times China’s and five times Japan’s.
It’s one of the main reasons for the chronic undervaluation of the domestic stock market. It’s arguably the biggest market reform that Lee’s government has tackled since taking office in June 2025.
Korea’s parliament is also acting to implement a long-debated ban on companies issuing so-called treasury shares. These shares, which don’t receive dividends or voting rights, are used by family-owned conglomerates, or chaebols, that tower over Korea. They help avoid hostile takeovers and eliminating them has long been key to ending the Korea discount. Lawmakers claim more reforms are on the way.
Suddenly, the Kospi index’s explosive bull run – up 123% over the last 12 months – is looking a bit less irrational.
On the campaign trail before taking office on June 4, 2025, Lee pledged reforms that would drive the Kospi to 5,000 over his five-year term (it was just below 2,500 at the time). Thanks to the artificial intelligence (AI) boom, it only took about five months. In fact, it even topped 6,000 at one point.
Then came the Iran war and surging oil prices. The turmoil is upending markets everywhere. Even so, the Kospi index now stands at around 5,765.
Of course, investors in Korea are plenty worried about how the Iran war and the energy inflation it’s sure to cause. Jung Dawn, analyst at LS Securities, noted that the global “stagflation narrative” is “gaining momentum.” That, in turn, could derail the “disruption” thesis driving the AI trade if investment in the sector dries up.
The AI trade sent the shares of top Korea Inc. chipmakers into the stratosphere. Samsung Electronics Co. is up 239% over the last 12 months; SK Hynix Inc is up 382%.
Even though Lee’s reforms are “important” and “certainly help valuations,” saying the Kospi rose above 5,000 “solely because of government policy may overstate the impact,” noted Mixo Das, strategist at JPMorgan Chase & Co.
At this week’s policy meeting, Lee Eog-weon, chairman of the Financial Services Commission, seconded the idea that the government will harness current market volatility to push bold reforms and strengthen underlying market fundamentals.
That includes accelerating the delisting of weak firms and revitalizing the Kosdaq and Konex bourses. The Kosdaq is Korea’s premier market for growth and tech-oriented companies; the Konex is aimed at early-stage startups and small firms.
As chairman Lee explained, amid external shocks stemming from the Iran war, Seoul will prioritize restoring trust in the economy, strengthening shareholder protection, supporting innovation, and broadening market accessibility to foreign capital.
“What matters more,” chairman Lee said, “is fundamentally improving the structure of the capital market. Crises can return at any time, and the key is to build a market structure that does not falter in the face of shocks.”
Chairman Lee said the direction that Korea “should take is to create a virtuous circle in which the development of the capital market drives corporate growth and expands household wealth at the same time. The government will use this crisis as an opportunity to boldly push ahead with reform measures aimed at improving the fundamentals of the capital market.”
One important goal is to create a trusted alternative to Korean households obsessed with owning real estate. The perception that property is the only real path to create wealth explains why the sector accounts for roughly three-quarters of household assets.
Strategist Peter Kim at KB Securities Co. said the idea that the “over-concentration of property ownership over financial assets is about to reverse” is “one of the most profound trends from Korea in the coming decade.”
Yet Korea’s discount problem is much bigger. It’s also vital that lawmakers take strong, transparent antitrust action to reduce the dominance of a handful of chaebols. They’ve long hogged the economic oxygen that startups need to disrupt Korea Inc. and increase national competitiveness.
Credit where it’s due: Lee is indeed making up for lost time to restore trust in Korea Inc. It’s quite a feat considering the epic mess his predecessor, Yoon Suk Yeol, left behind. Yoon was impeached, removed from office and sentenced to life for declaring martial law in early December 2024.
Lee’s first job was restoring some semblance of order to a political system in chaos. Against the odds, Lee is managing to get some long-delayed upgrades through a fractured national assembly awash in score-settling.
Yet, the hard part has only just begun. For over a decade now, Seoul has been lobbying index giant MSCI to upgrade Korea to developed-market status. The change would pull powerful waves of international capital into won-denominated assets. It would also get Korea out of the orbit of China and India.
Yoon tried his hand at accelerating corporate reforms. In 2024, he rolled out a “Corporate Value-Up” program, modeled after Japan’s decade-long effort to increase returns on equity. Yoon pledged major capital markets upgrades, including increased transparency, scrapping outdated regulations, extending currency-trading hours and loosening limits on corporate ownership.
Unfortunately, Yoon talked far more than he acted on strengthening Korea’s capital markets. And MSCI was unmoved. In June 2024, when MSCI rejected Korea’s request, it threw some snark its way.
MSCI said: “Once in effect, these efforts will be subject to consultation with market participants to assess their impact and effectiveness.” In other words, talk less about change and do more to enact it. MSCI said no again in June 2025.
The bigger problem is chronic complacency. Lee is the fifth elected Korean leader since 2008 to take power, pledging to generate more economic energy from the ground up rather than just top-down. Generally, that meant taking on the chaebol system that helped propel Korea into the ranks of the top 12 economies.
The backdrop is that Korea Inc. knows that so much of what it does well has been commoditized. China and other rising Asian powers are now rivals in cars, electronics, robots, ships and popular entertainment. Taiwan is constantly raising its innovative game, while upstarts like Indonesia and Vietnam are making the race for tech “unicorn” startups more dynamic.
The best way for Korea to maintain its high living standards is to innovate in ways that propel the economy upmarket even faster. That’s why Lee and the four leaders who preceded him pledged an innovative “big bang” to move Korea upmarket into higher-value sectors.
Between 2008 and 2013, Lee Myung-bak came and went without fundamental changes to the chaebol system. Then came Park Geun-hye, Korea’s first female president. In 2013, she took office with bold talk of devising a more “creative” economy.
Park promised to shift tax incentives toward startups, strengthen antitrust enforcement and penalize big companies for hoarding profits that could be used to fatten paychecks. Park ended up going easy on the chaebols.
Moon Jae-in, Park’s successor, talked a great game about a “Korean New Deal” of wage increases from 2017 to 2022. He, too, left the economic trajectory largely unchanged. All the complacency, presidency after presidency, left the job of economic management largely to the Bank of Korea.
But now, with Korea stuck between a slowing China and a chaotic Trump administration tossing tariffs and geopolitical shocks Asia’s way, President Lee’s focus must be on increasing national competitiveness, too. His success in taming the Korea discount suggests he might just be the leader to do it.
Follow William Pesek on X at @WilliamPesek